2024 will be the largest election year in history, as half the world’s population, in 80 countries and territories, go to the polls.The U.S. Presidential election this week has been on most Americans’ minds for the last 2 years. The election of the world’s most powerful person will be closely watched everywhere, including the global financial markets.
With America’s highly polarized political environment, today’s competitive media outlets opportunistically embellish storylines to suggest the world, as we know it, is teetering on the abyss if the “other side” prevails in November. It is this endless pursuit of clicks, eyeballs and ears that precipitate such extreme perspectives and headlines as they “preach to their political choirs”. It is understandable why investors everywhere, along with our Pacific Wealth Management clients, frequently ask whether this year’s election outcome will influence our economy and global financial markets.
It is difficult to find incontrovertible evidence that politics are a determinant of long-term financial market performance. Stocks have performed well under both Republican and Democratic presidents. The best returns occurred during the Franklin Roosevelt (Democrat), Eisenhower (Republican), Reagan (Republican) and Clinton (Democrat) administrations. The average returns (excluding dividends) were 9.6% when Democrats won and 5.7% when Republicans won. However, in the 10 years post-election, results from both parties are similar, with the S&P 500 earning approximately 7% (excluding dividends).
The United States has experienced the same dynamic over the last two administrations. Despite the significant differences between Biden and Trump policies, and with both presidencies enduring stock market corrections (the COVID pandemic under Trump and the Federal Reserve increase in interest rates in Biden’s presidency), stock market performance has been similar with the S&P 500 earning 14% (including dividends) under each administration. This reinforces our perception that financial markets were not influenced by a particular party nor driven by election results.
This historical data affirms our view that economies influence political outcomes more than political outcomes influence economies. We believe the fundamentals of inflation and interest rate direction exert more influence on financial market performance than election outcomes. The $28 Trillion U. S. economy has a significant amount of inertia. Our economy continues to be primarily influenced by consumer spending and will NOT be re-tooled because of an election result.
Pacific Wealth Management investment portfolios are constructed with disciplined diversification to effectively weather economic and financial market cycles while participating in the long term growth of the U.S. and global economies.