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Is Right Before an Election a Good Time to Invest in the Stock Market?

by BlogInvestment Portfolio

Investing in the stock market right before an election can be a double-edged sword, with both potential benefits and risks. Here are key points to consider based on historical trends and expert insights:

Potential Benefits:

  1. Market Anticipation: Historically, markets often rally before an election, driven by optimism about potential outcomes. For example, following the 2016 presidential election, the stock market experienced a significant surge, reflecting investor confidence in the new administration’s pro-business policiesion Rebound**: After elections, once uncertainty is removed, markets can stabilize and even rise. The 2020 election saw a strong rebound in the stock market after Joe Biden was confirmed as the winner, driven by hopes for economic recovery and vaccine announcements.
  2. Unpredictable Outcomes: are unexpected, it can lead to significant market declines. The emotional reaction of investors to surprising outcomes can exacerbate volatility.
  3. Economic Factors: Broader economic conditions, inflation rates and interest rates, can overshadow the impact of elections on the stock market. If economic indicators are weak, they may influence market performance more than the election results.

 

Here’s a look at what happened to the U.S. stock market after the last five presidential elections:

2020 Election (Biden vs. Trump):

  • Result: Joe Biden won.
  • Market Reaction: Initially volatile, the market recovered and surged after election results were confirmed, fueled by optimism around a COVID-19 vaccine and the expectation of stability under a Biden administration. The S&P 500 gained about 7% in November 2020. The market was buoyed by hopes of economic recovery, a stable transition, and stimulus measures​.
    • The Dow Jones reached 30,000 for the first time.
    • Technology stocks, which had benefited from pandemic conditions, continued to perform well.

2016 Election (Trump vs. Clinton):

  • Result: Donald Trump won.
  • Market Reaction: After Trump’s unexpected win, the Dow Jones futures initially plummeted, but the market quickly rebounded. The S&P 500 rose by 5% in the month following the election. Investors anticipated tax cuts, deregulation, and infrastructure spending under Trump’s administration, leading to a surge in industrial, financial, and energy stocks​.

2012 Election (Obama vs. Romney):

  • Result: Barack Obama was re-elected.
  • Market Reaction: The stock market initially reacted negatively. The S&P 500 dropped by nearly 2.4% the day after Obama’s re-election, primarily due to concerns about the looming “fiscal cliff” (a combination of tax hikes and spending cuts). Markets remained volatile until a compromise was reached in late December​.

2008 Election (Obama vs. McCain):

  • Result: Barack Obama won.
  • Market Reaction: Obama was elected during the global financial crisis, and the stock market continued its decline. The S&P 500 fell about 5% in the two days following the election due to the ongoing economic downturn. However, as Obama’s stimulus plan was announced, the market began to recover. By March 2009, the stock market began its longest bull run in history, which continued through much of Obama’s presidency​.

2004 Election (Bush vs. Kerry):

  • Result: George W. Bush was re-elected.
  • Market Reaction: After Bush’s re-election, the market reacted positively, with the S&P 500 rising about 1.1% the day after the election. Investors were optimistic about continuity in economic policy and tax cuts that were beneficial to corporations. Over the following months, the market continued to climb.

Conclusion:

While investing right before an election may have opportunities for gains, it also carries significant risks due to market volatility and uncertainty. For long-term investors, focusing on a diversified portfolio and sticking to fundamental investment strategies is often a safer approach than trying to time the market based on political events.

To learn about Women and Investing, download our Women and Investing guide here.

For help with your investment portfolio, reach out to retire@herretirement.com. We can connect you with investing professionals.

This information has been provided for informational purposes only. Investing in the stock market involves risks, including the potential loss of principal. Market fluctuations can lead to unpredictable returns, and there is no guarantee of future performance. It’s important to conduct thorough research or consult with a financial advisor before making investment decisions. Past performance is not indicative of future results, and individual circumstances may vary.

For more detailed insights on investment risks, you can refer to the following sources:

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Volatility: What’s the Best Defense?

by BlogIncome PlanningInvestment PortfolioRetirement IncomeRetirement Income PlanningWealth

Thoughts and ideas on the recent market losses and volatility due to the Coronavirus scare, and general economic and political uncertainty. Recent panic caused by the spread of the Coronavirus (COVID-19) has led to a stock market decline and has many investors feeling anxious. While portfolios will see ups and downs and this is a normal part of investing, the recent sell-off was sharp. It is in times like these that our team can best serve you by providing perspective on how we see these issues playing out.

The Best Defense is a Strong Offense
Nobody knows where the market is heading. Therefore, we believe that research and pro-actively planning, and implementing strategies that factor in potential significant drops in the market is critical. This is a strong offensive play in the world of portfolio planning (especially for those closing in on retirement). And what we consider to be the best defense to market volatility.

When the market heads up, and we get by this event-driven volatility, having a portfolio that has allocations to global equities to take advantage of market growth is critical. And if the market continues to fall, it’s critical to protect your principal with allocations to Fixed Indexed Annuities.

Either way, this “Hybrid Income Portfolio” strategy balances protection and growth, regardless of where the market heads. This is especially significant now, as equity prices are coming off all-time highs and bond prices are also high, as their yields have fallen to all-time lows. As we have seen recently, market conditions can change quickly in both directions.

For these reasons and more, we believe a Hybrid Income Portfolio to be a powerful alternative to other portfolio strategies. It’s also backed by academic research and has proven itself time and time again.*

The Impact on the Global Economy
Though the impact on human life is at the forefront of everyone’s concerns, there are many uncertainties surrounding the potential impact of the virus to the global economy. The global economy was already fragile from the nearly two-year-long U.S.-China trade war and the spreading virus will likely impact economic growth. While more equity market weakness is possible as the virus continues to grow globally, the downside could be limited as governments and global central banks have possible tools to combat the potential death toll and economic impact.

From the human life perspective, China took severe steps to limit the spread of the virus including forced quarantines, limited social contact, and significant population testing. We expect other inflicted nations to follow suit. From an economic perspective, global central banks including the People’s Bank of China and the Bank of Korea have already increased monetary stimulus or plan to do so. As we have seen in the U.S., and, specifically the U.S. housing market, over the past year, easing monetary policy can provide a potential economic stopgap. Furthermore, in the U.S., given unemployment levels near 50-year lows, the consumer, the driver of the current economic expansion, remains in good shape. We do expect market uncertainty to continue but downside may be limited. We also think the impact to markets will vary by sector. Sectors related to travel, such as cruise lines, airlines, and hotels are already taking a hit. Online entertainment companies and streaming services are performing better.

The team here at Retire Smart Network will continue to monitor and update information about our nation’s financial and physical health. If you’d like to discuss your portfolio strategy with a retirement planner or have a question about any retirement/financial topic, simply reach out and we’ll make it happen.

P.S. Don’t forget the Best Defense is a Strong Offense when it comes to protecting your health too…proper hand washing, eating right, getting enough sleep, avoiding sick people, stocking up on meds, food, water and household supplies, and having an attitude of positivity and gratefulness. Worrying about health or finances isn’t a productive use of time. Embrace optimism and reach out to us at any time.

*Sources:

  1. Morningstar Analysis, June 23, 2017, Snapshot Report.
  2. Roger G. Ibbotson, PhD Chairman & Chief Investment Officer, Zebra Capital Management, LLC Professor Emeritus of Finance, Yale School of Management Email: ZebraEdge@Zebracapital.com, Fixed Indexed Annuities: Consider the Alternative, January 2018.
  3. Shift Away from Potential Risk and Toward Potential Return, Nationwide (Morningstar), 06/16.
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A Soon-to-Be Retiree’s Guide to a Crazy Market

by Investment PortfolioRetirement Income

Nearing retirement? When the stock market tanks … Do. Not. Panic. according to this CNN Money article…

You’ve heard that before. But it’s hard to sit tight during a market freakout if you’re closing in on retirement. Losing a big chunk of your savings now could be devastating.

Retirees should avoid drawing from investments (in other words, selling stocks) when the market is down. It’s the same golden rule you’ve followed all along, but it gets trickier once you need to use the money in your nest egg — and have fewer years for your investments to bounce back. Read more…

Once you’ve read the article, contact us for a complimentary consultation with one of our affiliate retirement specialists. He/she can review your portfolio and allocations to make sure you’re in the strongest position possible in any market. Even if you have an advisor, it’s always a good idea to get a second opinion.