The summer of 2024 is here, and the commotion you see on the near horizon is this year's election season, almost upon us. I am reminded of the old French saying, which loosely translates to, “The more things change, the more they stay the same.” Need proof? Think of the words to Bob Dylan’s song from nearly 60 years ago, where he sang, “Come senators, congressmen, please heed the call. Don't stand in the doorway, don't block up the hall. For he that gets hurt will be he who has stalled. The battle outside ragin' will soon shake your windows and rattle your walls, for the times they are a-changin'”. While it is impossible to predict what will happen because of this year’s election, there is plenty of historical data to demonstrate how elections impact the markets and why it is smart to plan for the longer term.
Carolanne's Corner
Life is certainly full of change. Planning for a future that holds so much uncertainty and change is challenging. That’s why we believe in meeting with you, our clients, at least once a year to prepare. When it comes to the presidential elections, it’s easy to get caught up in the latest opinions. It’s important during times of change to refer to what has happened in the past as a possible gauge of what may happen in the future. Thankfully, we have had many elections with differing outcomes in our nation’s history to help us through this one. I know you may believe 'this is the most critical election in our lifetimes!’. Is it really? Are you sure? This edition of our newsletter will hopefully help to lessen the concerns that this time is, in fact, different. Clearly, there is a lot of truth in the old adage, “Elections have consequences.” But making hasty decisions without a historical perspective could bring unintended consequences to our own financial futures.
Elections and Market Trends
The historical impact of presidential elections on the stock markets is well-documented, with several key trends and patterns emerging over time. Well before the election, a type of pre-election uncertainty manifests itself in different ways.
One indicator of that uneasiness, market volatility, appears in the months leading up to a presidential election. This is largely due to uncertainty about future economic policies, as different candidates/parties tend to bring significantly different approaches to fiscal and monetary policies, regulation, and trade with them.
Another indicator, investor sentiment, generally becomes more cautious during this time. This can lead to market indices fluctuating as those investors try to hedge their bets and anticipate the election outcome. This speculation can impact the economy and specific sectors within it.
One aspect that doesn't seem to make a big impact is party affiliation. Historically, there has been the perception that Republican presidents, often viewed as more business-friendly and in favor of lower taxes and deregulation, might be better for the stock market. However, the data shows that the stock market performed equally well under both Republican and Democratic administrations. In fact, some analyses indicate that stock market returns have been slightly higher on average under Democratic presidents, though this is subject to numerous economic and global factors beyond presidential control.
Here's a look at how presidential elections tend to influence stock markets over the last century (since the election of Herbert Hoover, Republican, in 1928 to the mid-term of Joe Biden in 2022):
Markets generally react negatively to changes or surprises. If the incumbent wins, markets frequently react positively, as this implies continuity and predictability in policies. Conversely, the introduction of a new administration might lead to short-term volatility as markets adjust to anticipated changes in policy direction.
When an unexpected winner emerges, the markets can quickly react before settling in. A good example is Donald Trump's 2016 election; the news initially led to a market decline overnight that was immediately followed by a rapid recovery and subsequent rally as investors anticipated business-friendly policies.
Another thing to keep in mind is that while the overall markets may not be impacted, specific sectors within the market may react differently depending on the anticipated policies of the winning candidate. For instance, a candidate promising increased infrastructure spending might boost construction and materials stocks, while a candidate focused on healthcare reform could impact pharmaceutical and insurance stocks.
So, if control of the White House isn't the driving factor, what is? Congress and the Federal Reserve Board are the two groups that have more influence on the markets than the president. Congress creates the laws, sets tax policy, and determines the budget. The Fed sets monetary policy that impacts significant drivers such as interest rates. Depending on how the Fed interprets the economic data, it can wield a more immediate impact on the markets than the president.
Bottom line: Elections are important, and their outcomes do have consequences. However, when it comes to the behavior of the markets and longer-term financial outlooks, there is not a big difference when it comes to who is in office. Other factors, often outside the control of the President, are the engines that drive the markets. Be sure to exercise your right to vote, then rest easy, knowing that long-term prospects are good.
News and Upcoming Events
New Associate Financial Planner
Please welcome Jordan Bromley, CFP®, to the team! Jordan comes to the team with over five years of experience as a financial planner and brings a wealth of knowledge along with his Certified Financial Planner (CFP®) designation. He is relocating from the east San Francisco Bay area and is all set to begin his career here in July. Jordan is a graduate of Brigham Young University and holds a master's degree in Financial Planning and Analytics from Utah Valley University. In his spare time, Jordan is a cross-fit devotee and a big fan of musical theater.
Prosperity Wealth Planning Has Moved! 
As you may have seen in our earlier announcement, we recently moved our primary office location to Irvine. We will still be holding meetings in our Long Beach and Frisco offices for anyone who would prefer to meet in a location closer to home. We invite everyone to stop by our offices at 3349 Michelson Dr., Suite 200-8E, Irvine. If you would like to schedule an in-person meeting, please contact Jenny Molnar at jenny@prosperitywealthplanning.com.
Text Messaging
We recently started using text messaging as an effective and efficient way to stay in touch. You will receive a message from our new texting number, (949) 603-1299. Once you receive the message, just respond with “Yes” to receive more messages from us in the future. Please DO NOT share personal or financial information in text messages.
Fall Prosperity Planning Sessions
The start of the Fall Prosperity Planning Sessions is just around the corner. Be on the lookout for announcements to start scheduling your appointments later this month. Fall Prosperity Planning Sessions run from September 3rd to November 29th and cover topics including:
- Financial and Investment Plan Update
- Beneficiary Review
- Legacy and Estate Plan Analysis
- Tax-Loss Harvesting/Capital Gains
- Maximizing Contributions (if applicable)
- Roth Conversions (if applicable)
Client Appreciation Event – Southern California
Save the date—the Southern California Client Appreciation Event will be held on October 24, 2024, at a location yet to be determined. Please plan to join us for an evening of fun, food, and friends! Look for more information in the coming weeks.
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Finally, as the calendar delivers us ever closer to the election this year, remember that while presidential elections can influence stock markets by creating uncertainty and potential policy shifts, it is wise to keep a longer-term perspective. Many factors, including global economic conditions, technological advancements, and broader economic policies, influence the performance of the markets over time. Having a plan in place to take advantage of the changes in the markets is key to a successful future. We look forward to meeting with you again soon to discuss yours. In the meantime, enjoy the beautiful summer weather!
Cheers!
Carolanne