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January 22, 2024

How will the presidential election affect the stock market?  Not how you might think.  First, I’ve often said that when it comes to forecasting markets, you need to take your political ideology, whatever it might be, and ignore it.  Throw it out the window, forget you have one.  Your ideology, whether left, right, center, or from another planet, will hurt you.  I’m not saying politics have no effect.  Politics do influence markets, but in a way that most can’t fathom. 

I field questions from almost everyone about this effect.  Those questions and comments generally take some form of “if that person wins, it’ll be the end of the world…..and markets!”  In fact, investors regularly make harmful investment decisions because the election scares them.  Don’t be scared.  Election years are overwhelmingly positive.  In fact, throughout the entire history of the S&P 500, they’re positive 83% of the time.  Only the third year of a presidential term is more likely to be positive at a rate of 92%.  I covered this fact in my outlook from January of 2023.  Even more powerful, in times when the 2nd year of a presidential term was negative (like 2022), the subsequent election year has never been negative!  Never.

So, what effect do elections have on markets?  In presidential election years, because we have been so divided politically, and politics are intensely emotional, even more so in recent times, election years can be volatile, typically in the first half of the year.  Early in the election cycle, there is fear running rampant through all sides of the political spectrum.  You can see this in the political rhetoric coming from the two main parties.  Republicans are clamoring that if Biden wins re-election, we’ll never get our country back!  Democrats are pounding the table that if Trump wins, it’ll be the end of democracy!  Both sides worried about the coming Armageddon!  Such talk is just more bricks for the “wall of worry” bull markets love to climb.  Don’t fall for it.  Embrace the ride.  Don’t get whipsawed.   Stay steadfast.  In the end, it’s very likely to be a very satisfying one.  As per our 2024 Market Outlook, released earlier this month, I expect this year to be a very good one.  So far, it’s playing out just that way.