From the Desk of Dale Crossley and Evan Shear
We hope that you and your loved ones are doing well. It doesn’t seem that long ago that we were discussing how the markets may possibly be impacted during a presidential election year. It was a concern among investors in 2020 and once again, we’re having conversations with our clients. So, we thought you might find some additional information helpful.
As you know, many things can affect the stock market and, as a result, your financial portfolio. With a long-term plan in place, you may assume that you are ideally positioned to weather any challenges that may come your way. However, in the midst of an election year, many people grow uncertain. They start reevaluating their portfolios and considering how they may perform in the coming year. Will the 2024 presidential election affect your portfolio?
"Presidential Election Cycle Theory"
Presidential election cycle theory notes trends in the stock market based on the presidential election cycle. The cycle lays out the strongest years in the stock market based on the presidential election cycle. Year three of the president's term is often the strongest year on the market. Then, year four is the second strongest.
On the other hand, the first year of a president's term is often the weakest year of his term regarding the stock market. This can have significant implications for investors. Utilizing the presidential election cycle theory, investors might change their entire strategy. They might choose to purchase investments late in the year of the second year of a presidential term and then sell them late in the fourth year.
What History Tells Us
Historically, many things have the potential to impact the stock market. These factors include the current president and his economic and financial policies. There are some historical trends in the stock market based on specific stages of the presidential term cycle. But that theory does not always hold up. Also, worries about the presidential election cycle and its impact on the stock market are often overblown.
Take, for example, the last two presidents and how the stock market has performed during their terms. During Obama's presidency, the first two terms were more profitable than the third year. Trump saw a significant increase in profitability during his third year. But the fourth year, and the pandemic and other serious concerns, caused a highly volatile market that saw a decrease in the value of many investments.
Following the presidential election cycle theory can provide potential insight into investments, including a possible investment strategy and plan. However, based on a historical view, it does not necessarily follow that the upcoming election will substantially impact the stock market—regardless of who might win that election. Historic insights also indicate that the market can change dramatically based on conditions completely unrelated to election cycles. A long-term financial plan is the best way to weather the inevitable ups and downs in the market.
Should You Stay the Course?
As you try to decide what to do about your investments, many investors are considering whether they should sell assets late in 2024, before the new president takes office. However, a long-term investment strategy—one that allows for short-term shifts in the market—can be more effective than selling off investments as a reaction to the changing economic conditions anticipated after a presidential election.
In order to create an effective investment strategy, our advisors at CrossleyShear Wealth Management focus on the long-term value of your investments. You may be planning for a child's college fund, a significant purchase, or your retirement years. You might even want a long-term plan to provide generational wealth.
In all of those cases, the value of your investments will likely withstand the changes in the market. A long-term investment strategy that seeks to maximize value and return over time can be much more effective than pulling out of those investments in anticipation of a potentially difficult year.
By judging the market over time rather than on the basis of short-term economic changes, investors can develop a deeper understanding of options. You can also learn how you can help protect your investments. If you want have questions about your financial plan, please don’t hesitate to reach out. That’s why we’re here.
Any opinions are those of CrossleyShear Wealth Management and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members.
There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. All opinions are as of this date and are subject to change without notice. Past performance is not a guarantee of future results.
