How do presidential elections impact your portfolio?

Jamie Viceconte, Head of Investment Product | Citizens Wealth Management

_{Jamie joined Citizens Wealth Management in 2022 and is responsible for the curation and management of the investment product suite of ETFs and Mutual Funds, and portfolio models constructed with these products. As a strategic partner, he has over 30 years of experience in financial markets focused on a broad array of public and private equity and fixed income products.}

Investing is stressful under normal conditions. When a presidential election could dramatically change the country's leadership, keeping emotions in check is even more challenging.

As you manage your portfolio, it's crucial to still make data-based decisions for your long-term financial goals. Here's what past results can teach us about the stock market during election years.

Presidential elections' impact on the stock market

Presidential elections matter for many parts of society, but election year stock market history shows they aren't likely to significantly impact your portfolio. The annual return of the S&P 500 has been mostly the same in presidential election years as in non-election years, going back to 1927.

While it might feel like everything will collapse if your candidate doesn't win, that hasn't happened after past elections. Typically, the S&P 500 follows the same long-term growth rate during elections and after.

Looking at the previous 10 presidential election years, the price of the S&P 500 trends upward in the months leading up to the election, with the exception of 2000, which saw the burst of the dotcom bubble, and the Great Recession of 2008.

The winning party's candidate historically has not mattered. If you look at the stock market by president, the annual return for the S&P 500 was 13.8% from 2009 to 2017, 14% from 2017 to 2021, and 11% since 2021.^{1 2} Investors fared well under all three presidents.

The stock market in election years and after

This isn't to say that presidential elections make no difference whatsoever to the stock market.

Short-term market volatility tends to be higher in the months leading up to an election,³ as there's uncertainty about the country's future direction. Volatility in the stock market after elections usually slows once investors gain a clearer picture of the country's economic direction.

The winner's policies can also impact specific market sectors.³ Defense and industrial stocks performed better after the 2016 election, with the expectation of support for these industries. The health care sector tends to do better under Democratic presidents.

Still, these portfolio differences are relatively minor compared to the emotional weight of presidential elections.

What actually impacts the stock market during presidential election years

The stock market in presidential election years is primarily affected by the same factors as during non-election years:

• The economy
• Inflation
• Fed policy and interest rates
• Global events and unrest
• Investor confidence about the future

When the economy is strong, inflation is low, and investors feel confident, the stock market typically performs well in both election and non-election years. Economic problems usually lead to market downturns. As an investor, you should be making the same evaluation of market data for trades as you would in a non-election year.

In fact, stock market performance impacts presidential elections more than presidential elections impact the stock market. In years when the incumbent lost, the stock market was likelier to have worse performance and more volatility leading up to the election than in years when the incumbent won.⁴

Congressional elections' impact on the stock market

Down-ballot Congressional elections can also impact your portfolio.⁵ The stock market historically has done better in the years after a presidential election when Congress was either fully controlled by the president's party or divided. On the other hand, the market does worse when the opposition controls both houses of Congress.

This could be because if there's unified opposition, Congress is less likely to pass economic measures supporting the president. Still, the S&P 500 historically posted double-digit returns in these divided years, even if they were lower than other scenarios. Even in these less-than-ideal market conditions, investors usually come out ahead.

Consult your Wealth Advisor*

Emotional investing is one of the biggest mistakes people can make. That's especially true during a presidential election year. It might be tempting to take on more market risk when your candidate's prospects are looking up and sell off when the election goes against your preferences.

Investors are more likely to hold cash during presidential election years while they wait to see what happens, before reinvesting back into the stock market the year after.⁵ This pattern often hurts their overall returns. Ideally, you should stick to your long-term investment plan regardless of election trends and results.

Working with a Wealth Advisor can guide you through a stressful year. They can help you create a financial plan* tailored to your long-term goals regardless of which party is in the White House. More importantly, it is good practice to discuss significant investment decisions to ensure they make sense for the long term and aren't overly influenced by political headlines.

A Citizens Wealth Advisor* can help you reach your financial goals

Citizens Financial Group traces its history back to 1828. We've been around for nearly every presidential election and major stock market event. Our Wealth Advisors have the experience to guide you through this latest presidential election and many more.

Contact a Citizens Wealth Advisor today for personalized portfolio advice and support* to stay the course during stressful market conditions.

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