What Happens to the Stock Market During an Election Year
Elections are a time of intense uncertainty, not just for the politicians scrambling for your vote but for investors as well. The stock market is often volatile in an election year, especially when an incumbent president is up for reelection. But does the stock market trend the same way, regardless of whether the outcome is favorable to the Republican or the Democratic Party? In this blog, we’ll take a dive into the history of the stock market in election years, along with the areas of the market that performed well and what areas struggled during the different presidencies.
An examination of the historical data reveals that election-year stock markets are generally good markets for investors. If a Republican is in the White House, the stock market forecast is often favorable as Republicans usually have a reputation for being friendly to businesses. However, for initial political terms of Republican presidents, the stock market can be relatively lackluster. This is likely because investors have yet to determine just how much the new president can accomplish.
In contrast, an election year could prove to be challenging for Democrats. Markets may become unsettled, as Democrats often push for market regulations and higher taxes, which are known to shake up the marketplace. But don’t dismiss the Democrats. Historically, markets have performed much better during a second term of the Democrat presidents.
If you’re an investor with an eye on an election year, it’s critical to follow the political news of the day, but don’t become so preoccupied with it that it affects your investment decisions. Instead, focus on the fundamental aspects of the company in which you are considering investing. It’s also worth looking at investing in companies that might be positively impacted by the platforms of the politicians involved. For example, renewable energy companies could fare well under particular Democratic leadership.
Traditionally, technology companies have outperformed during election years, and this trend has been in place since 1932. The post-pandemic world operates in a digital landscape, and this trend is expected to continue. Therefore, you might want to consider investing in tech companies that can provide support services to this new world.
Like any other time, we recommend removing as many emotions from your investment decisions as possible. It can be difficult during an election year but your focus should be on your portfolio and not on election results. A properly diversified portfolio containing both traditional and alternative investments should perform well during any administration. As an investment advisor in Gilbert Arizona, we can help you construct and manage this portfolio.
In conclusion, history has shown that the stock market is often more robust in election years than in other years. When it comes to investing, it’s essential to remember that you’re investing in a company’s future and not just in the political climate of the day. Taking a look at the historical data can help you make informed investment decisions. Don’t forget to consider the fundamental aspects of the company you’re considering, and don’t jump to unwarranted conclusions based on political allegiances alone. And, be diversified. Investing can be a wild ride but take a structured approach, stay informed, and you could see significant returns, regardless of the outcome of an election.