2024 Presidential Election & Your Investments: Why You Shouldn't Panic
2024 Presidential Election & Your Investments: Why You Shouldn't Panic
Volatile elections could be reflected in your portfolio, but they are no different than any other event impacting your long-term goals.
Normally, I avoid addressing political or current events directly because I believe you cannot focus on the minutia of time when you should have a long-view investment policy. However, this election has rattled a number of my clients and colleagues who would go so far as to suggest exiting the market before November and reentering when any hoopla surrounding the election subsides. (This is just market timing, which should never be done…)
📽️If you would like to watch my take instead of read it…
Certainly, any reasonable person could fear losses in the stock market due to this upcoming presidential election. Americans are very divided—and not just on negotiable topics such as tax policy. It seems that we are more divided than any other time during my life. (I will note that for the better part of 200 years, historians have been claiming we’re more divided than ever.)
However, in light of this current moment, here is my take on the election and how it may all play out when it comes to your investments.
It’s All Bread & Circuses
Looking at the market, and how it’s carried on through the last few years—really since COVID—it seems to me it is VERY disconnected from the latest political and geopolitical news cycle.
Things it barely flinched at in the last year:
Democrats changing candidates at a historically late moment.
Multiple assassination attempts on the Republican candidate and former president.
Ongoing conflict in Ukraine.
Historic highs with the U.S. budget deficit.
October 7th in Israel followed by a broader war and continued violence that has drawn global attention.
Even with the above events, from October 2023 to October 2024, the U.S. stock market, particularly the S&P 500, experienced significant growth. The S&P 500 rose by about 34.38% during this period.
The year was marked by robust gains despite geopolitical uncertainty, concerns about inflation, and these rather shocking national and geopolitical events. Consider, if you knew these events would happen, would you not have been tempted to leave the stock market and sit on the sidelines? Had you done that, you would have missed out on a great run.
Why is this happening? Why is the market so disconnected from what seems like nation and world altering events? Over these last few years, I’ve concluded that much of what is happening on TV and social media when it comes to political events is a performance, unrelated to the fundamentals of what is happening among the rest of the country who goes to work, pays their taxes, raises their families, and invests in the markets.
For some reason, things that “should” make CEOs and investors very nervous are ignored, overlooked, or not even considered. The political commentator and creator of Dilbert, Scott Adams, often talks about the concept of "two screens" in relation to how people perceive political events and the media. The "two screens" metaphor refers to the idea that two people can look at the same event or information but interpret it in completely different ways, as though they are watching entirely different screens. This concept is rooted in the psychological principle of confirmation bias, where people tend to filter information through their existing beliefs and narratives.
In his scenario, he is referring to opposing political viewpoints, that our nation is very divided because we are watching two screens. I believe this also applies to those who are deeply entrenched in the political and news reporting system versus the rest of the country. One side believes that these political machinations are the most important thing and the other barely acknowledges the existence of these events and continues living their lives.
The Biggest Threat
This is not to completely dismiss any concerns you have about the election and its impact on your long-term wealth. There certainly are black swan events that destroy economies—but most of the time that is what they are —black swan, unexpected and unpredictable.
When it comes to this election, I propose the biggest threat to short-term market returns is how long it takes to count the ballots—not necessarily who wins or loses. Uncertainty is the worst thing for the stock market, and weeks or months of ballot counting and legal fighting over installing our next President is likely the most dangerous thing for the market. We have a small peek into this potential situation from the 2000 U.S. presidential election between George W. Bush and Al Gore, the stock market experienced significant volatility as the election results were disputed. The market in that case stabilized once Bush v. Gore was decided, but was followed by the burst of the dot-com bubble in 2001.
Stay the Course
Here is what you should do—turn off the social media, the news, and anything that gives you a ticker-tape style minute-by-minute play of what is at this very moment the most dire thing to ever happen and go enjoy your day. Go for a walk, hang out with your grandkids, have a glass of wine, read a book, but just say no to the entertainment news and politics that has little bearing on what is truly happening to your investments. And, if and when it does, just like any market cycle, you have to stay in through the troughs to get the peaks.
🍁🍂Village Life Lately
Fall is here and it’s so cozy here in the North Country! We are spending time preparing for the coming winter. We are busy winterizing the garden beds, installing heaters in our new chicken coop, and making sure we get outside to enjoy the fall colors and crisp air. Walking through our village each morning with our pups I am reminded of the L.M. Montgomery line: "I'm so glad I live in a world where there are Octobers."
