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How will the upcoming presidential election affect investment markets?  

With election season approaching, many investors are concerned about market volatility, political uncertainty, and wondering if they should make changes to their investment strategies. In the latest edition of “The Market Share,” Paul Gifford, Chief Investment Officer at 1st Source Bank, and Pete Cahill, CFA and Senior Portfolio Manager, shared their thoughts on the possible impact of the election on investment markets.

How Presidential Elections Affect Market Performance

Cahill explained that while elections often bring more noise and market volatility, history shows that election outcomes generally don’t have a long-term impact on the stock market. Looking at presidential elections since 1972, the stock market has performed well overall, regardless of whether a Republican or Democrat won. The notable exceptions, such as in 2000 and 2008, were caused by events like the dot-com bubble and the financial crisis, not by the election results themselves.

For those asking if they should stay invested during an election year, Cahill’s advice is straightforward: historical evidence suggests that staying in the market is often the best move. On average, the stock market gains over 10% during election years, significantly outperforming cash investments by about 6%.

The 60/40 Portfolio in Election Years

Cahill also talked about the 60/40 portfolio, a common mix of 60% stocks and 40% bonds. He referenced data going back to the 1860s, showing that the performance of a 60/40 portfolio in a presidential election year is not much different from its performance in other years. This reinforces the importance of sticking to long-term investment strategies and not reacting to short-term market changes or election-related headlines.

The Broader Election Cycle and Market Behavior

Cahill also noted that the broader election cycle, including elections for the U.S. House of Representatives, Senate, and various governorships, plays a role in market behavior. Historically, the stock market tends to favor a divided government, where power is shared between different political parties. This is because legislation passed under a divided government is often seen as more balanced and beneficial to the economy and financial markets.

As election day gets closer, Gifford and Cahill suggest that investors stay informed but maintain a long-term perspective on their investments.

Stay Updated with 1st Source Bank’s Market Insights

Staying informed helps investors understand how elections and other factors, like economic policies and government regulations, may impact their portfolios. Watch the full video for a deeper dive into these important developments.

And for more insights and expert analysis, subscribe to the Market Share and stay looped-in on the ever-changing investment outlook and economic environment.

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