Perception Matters

There are things known and there are things unknown,

and in between are the doors of perception.

Aldous Huxley, Author “A Brave New World.”

Question: Should I update my portfolio based on the upcoming Presidential Election?

Answer: While we’re in the early stages leading up to the 2024 election, we keep our eyes on the state of the economy. Top issues for voters as they head to the polls in November are inflation, economic growth, and unemployment. This doesn’t mean it’s necessary, or desirable to make changes based on the election, this year, or any other time.

Historically, there hasn’t been a time where Gross Domestic Production (GDP) was above 3% for two consecutive quarters, the unemployment rate was below 4%, inflation ~ as measured on a six-month annualized basis ~ was running at the Fed’s 2.00% target, and the stock market is up an impressive amount. The problem for Biden is that voters just aren’t feeling it. A recent poll from

Real Clear Politics shows that over 65% of the country believes the economy is on the wrong track, with 50% of voters believing the economy is in a recession.

Voter perception rather than reality is a challenge for Biden, especially if economic growth actually slows in the months ahead. History shows that if a recession unfolds in the two years leading up to an election, the incumbent doesn’t get reelected, and vice versa. The good news for the economy is that it doesn’t matter which party wins the presidency.

Election years, particularly reelection years, have been positive for the stock market. In fact, the S&P 500 was up approximately 13% on average and was positive in each of the last eleven reelection years. While the market, on average, has been positive, election years bring increased volatility. During election years, markets experience a maximum drawdown of roughly 15% per year compared o 13% in an “normal” year and have four 5% pullbacks (vs. three) on average dating back to 1980. Sectors experiencing heightened volatility include technology, EV/solar, and oil and gas. This is because both sides have conflicting policies and philosophies regarding these portions of the market. Trump would call for 60% tariffs on Chinese imports and Biden announced a temporary pause on LNG (liquid natural gas) projects.

Going forward, pay particular attention to performance during the three months leading up to the election. The market has a track record of predicting who wins the election and correctly called the winner in twenty of the last twenty-four elections. If the market’s performance is positive three months leading into the election, the incumbent party wins. In contrast, if it is down, the incumbent loses. Not a big surprise here.

History suggests that investors should not reposition portfolios based solely on the fact that this is an election year. Yes, elections bring uncertainty and volatility, but in the long term, fundamentals such as economic and earnings growth, monetary policy, interest rates and inflation have a more meaningful impact on future returns than which part is in power in DC.

Examining markets since 1937, the S&P 500 experienced twenty-one negative years. Eleven of those were under a Republican President and ten occurred with a Democrat President. When looking at GDP growth, seven negative years have occurred whether the President was a Republican or Democrat. The point is the market and the economy have historically gone up regardless of which party is in power.

Reports thus far into the year show weak retail sales, stronger inflation readings in the beginning of 2024 with increased credit card debt, higher usage of buy-now-pay-later (BNPL) services, and rising auto loan delinquency rates during the last quarter of 2023. This doesn’t mean the economy is going to enter a recession anytime soon, just that economic growth has weakened and is slowing.

The 2024 US Presidential election will be front and center as we get closer to November. Markets tend to be more volatile during election years. Since 1936, he 10-year annualized return of US stocks as measured but the S&P 500 index made at the start of election was 11.2% when a Democrat won and 10.5% when a Republican triumphed. The bottom line is that what party wins doesn’t matter as much as many believe it would. Many experts expect to see reshoring of American manufacturing and obstacles in trade with China. The majorities in Congress and the Senate are key to a president’s ability to implement their policies. It’s prudent to stay informed and knowledgeable about potential policy direction and impact on industry issues. Work with your trusted CERTIFIED FINANCIAL PLANNER™ Professional to create a personalized strategy to navigate and coordinate with your needs. Stay focused and plan accordingly.

Source: 02/233/24 FactSet, Morningstar and Federal Reserve

Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. The opinions expressed are those of the writer as of February 25, 2024, but not necessarily those of Raymond James & Associates, and subject to change at any time based on market conditions and other factors. There is no guarantee that these statements, opinions, or forecasts provided herein will prove to be correct. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including asset allocation and diversification.

“Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL Main™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.” This article provided by Darcie Guerin, CFP®, First Vice President, Investments & Branch Manager of Raymond James & Associates, Inc. Member New York Stock Exchange/SIPC 606 Bald Eagle Dr. Suite 401, Marco Island, FL 34145. She may be reached at (239)389-1041, email darcie.guerin@raymondjames.com Website: www.raymondjames.com/Darcie