For investors, cutting through the noise will be particularly challenging. The important question is, with many Canadians having significant exposure to U.S. assets in their portfolios, what will the outcome mean for their investments?
Financial markets are prone to respond to daily developments – both the good and the bad. This volatility is normal, and reacting emotionally is never a good investment strategy. No matter the results at the polls on election day, sticking to your long-term goals will still be your key to success.
To help keep things in perspective, let’s review how stock markets have reacted to past U.S. elections.
What history tells us
While past performance doesn’t guarantee future results, you may be surprised to find out that previous elections haven’t led directly to sustained financial market turbulence. Of the 24 presidential elections since 1928, Democrat and Republican victories were split at 13 and 11, respectively. Following each of those elections, the S&P 500 rose, regardless of who landed in the White House. This statistic is significant because, as a stock index that tracks the performance of 500 of the market’s largest publicly traded companies, the S&P 500 is often used as an indicator of the overall economy’s direction.
S&P 500 Average Cumulative Returns
(following presidential elections)
The presidential race certainly receives the most attention, but control of Congress – which will be decided on November 5 as well – can also influence how markets respond to the election outcome.
Again, the S&P 500 has historically averaged positive returns under nearly every partisan combination between the White House and Congress, as the following chart indicates. Results even indicate that a divided government can lead to better market performance. In these situations, the need for the two parties to compromise tends to produce tamer policy outcomes with more predictable results for investors. In general, markets don’t respond well to the uncertainty that comes with unchecked partisan policy making.
S&P 500 Average Annual Return
(1933-2024, excluding 2001-2002)
Key take-aways
Given the passion of U.S. voters, and the uncertainty around how and when any disputed results would be resolved, you can almost certainly expect some market volatility around November 5. At times like these, it’s important to remember:
- Volatility is a normal part of investing. Markets will react to political uncertainty, elections and policy changes. Keeping your emotions in check – and staying focused on a plan that’s geared toward your goals and risk tolerance – can be essential to your long-term investing success.
- Media and news reports can be informative, but they shouldn’t be a driving force in your decision-making. Market performance always needs to be put into perspective, with your goals at the centre. Speaking with a financial representative can add far greater value than reacting to headlines.
- Professionally managed investments offer comfort and value. Rest assured that the investment fund managers we partner with have been through market uncertainty. They understand the market, are equipped with sound strategies, and take an approach that’s designed to outlast market volatility.
Here are 5 strategies for getting through market volatility.