Broker Check

What Typically Happens to Stocks During an Election Year

April 23, 2024

As we navigate the uncertain terrain of election years, the stock market is often volatile, leaving investors uneasy. One of the primary factors that causes volatility in the market is uncertainty. Both investors and the market will likely experience uncertainty early in this election cycle. The primary season, characterized by many candidates vying for the highest office, introduces an element of unpredictability that can be particularly nerve-wracking. However, historical trends indicate that this volatility is typically temporary. Investors who display patience during these periods may be rewarded in the long run.


Markets hate uncertainty, and what's more uncertain than the primary season of an election year? The range of potential outcomes can feel overwhelming with numerous candidates on the campaign trail. As of mid–2023, 14 Republicans had already announced their candidacy, further adding to the situation's complexity. Volatility, as expected, becomes a constant companion during this period. The market responds to the ebb and flow of political developments, creating an atmosphere of apprehension among investors. The key is to recognize that this heightened volatility is typically short-lived.


The market returns to its typical upward trajectory once the primaries conclude and each party selects its candidate. The storm of uncertainty begins to clear, and investors can breathe a sigh of relief. Historical data indicates that patient investors who weather the storm during election years are often rewarded. Since 1932, stocks have, on average, gained an impressive 11.3% in the 12 months following the conclusion of the primaries. In contrast, similar periods in non-election years have seen gains of just 5.8%. These statistics highlight the resilience of the market and the potential benefits of staying invested during the election year rollercoaster.


Investors must adopt a long-term perspective when it comes to their investments. Attempting to time the market based on election cycles can be risky. Instead, embracing a patient and disciplined approach can help investors withstand volatility and instill confidence that markets have consistently increased over time, even in election years. This is why Harford Financial Group believes in the bucket plan. Having a solid emergency fund in your now bucket and ten years of reliable distributions in your soon bucket allows your later bucket investments to weather the storm of volatility that could come from an election cycle.


Uncertainty is inherent in the stock market, and election years amplify this reality. However, the market's resilience, as demonstrated by historical data, showcases its ability to bounce. Maintaining a resilient investment strategy for retirement income clients is critical to weathering the storms that periodically sweep the financial landscape.


In the face of election-year volatility, we encourage our clients to stay invested and resilient. The market may experience short-lived volatility during the primary season, but history teaches us that patient investors who stay the course are often rewarded with favorable returns. By adopting a long-term perspective, believing in the bucket plan, and trusting in the market's recovery, clients can confidently navigate the election year rollercoaster, knowing that their financial goals are within reach.