Have you been thinking about the presidential election? We have!
PlumTree Financial aims to provide our valued clients and friends with useful commentary and engaging information. Unfortunately, our planned delivery date for the November newsletter and the presidential election results falls too close together to provide a meaningful commentary. That is why this newsletter is being released a week early. Our next newsletter will be released on December 4th to close out 2024.
November 2024
Capital Markets
U.S. Election: Do Markets Care Who Wins the Election?
Distinguishing Fact from Opinion
The 2024 U.S. presidential election will take center stage over the coming days as Americans prepare to cast their ballots. Polls currently point to a tight race, with forecasters increasingly focused on six key swing states (Arizona, Georgia, Michigan, Nevada, Pennsylvania, and Wisconsin) that could determine the winner. However, each candidate’s position on key policies such as federal debt and government spending, foreign policy and trade, healthcare, immigration, and taxes will ultimately drive the vote — all major issues both sides remain divided on.
While politics remain divided, one thing we can all agree on is that markets dislike uncertainty. And given the backdrop of political uncertainty in Washington, investors should expect increased volatility in the back half of the year. For example, during election years between July and November since 1950, the S&P 500 has exhibited an average annualized volatility of nearly 25%. Volatility, in this context, refers to the dispersion of returns over a given period. This compares to historical annualized volatility of around 20% during non-election years. In addition, since 1950, the average maximum drawdown for the S&P 500 during election years is -21.2%, compared to only -13% during non-election years. Bottom line, buckle up for a potentially bumpier ride into November.
Of course, the big question on Americans' minds is who will win. Polls, betting odds, and forecasts can provide valuable insights into potential results, but the data can be noisy. One of the more surprising and unbiased election forecasters has been the stock market. Since 1928, whenever the S&P 500 was positive during the three months leading up to an election, the incumbent party remained in control of the White House 80% of the time (12 of 15 elections). In contrast, when the market was lower during the three months before an election, the incumbent party lost the election eight of the last nine times. When combined, market performance has “predicted” 20 of the last 24 elections.
The keys to 1600 Pennsylvania Avenue are also not the only things up for grabs this November, as 34 seats in the Senate are up for election, along with all 435 seats in the House. This raises another popular question during election years: How do stocks perform under various leadership compositions in Washington? Like most elections, several scenarios could play out regarding future political configurations between the White House and Capitol Hill. And while we won’t know what Congress will look like until at least November, we do know that the S&P 500 has generated its best annual returns with a Democratic president and a Republican-controlled Congress. However, the market has also posted strong annual returns with either a Democratic or Republican president when Congress is divided [Fig 11].
Source: LPL Research, Bloomberg 06/24/24
All indexes are unmanaged and cannot be invested into directly. Past performance is no guarantee of future results.
The modern design of the S&P 500 stock index was first launched in 1957. Performance back to 1950 incorporates the performance of predecessor index, the S&P 90.
What happens in Washington can play an important role in our daily lives and help shape the economy, but politics alone do not drive markets or the economy. There are other more powerful macro forces catalyzing economic expansions and contractions, such as the health of corporate America and the consumer, not to mention monetary policy. For the long-term investor, political opinions are best expressed at the polls and not in portfolios. As highlighted below, if you invested $100,000 in the S&P 500 back in 1950, but only remained invested during years when a Democrat was president, you would have around $3.1 million today (excluding dividends), compared to $1.0 million if you only invested when a Republican was president [Fig 12]. While this gap appears wide, it lacks in comparison to the $32.6 million you would have made if you bought and held the S&P 500 over the entire time frame, giving credence to the adage of time in the market beats timing the market.
Source: LPL Research, Bloomberg 06/24/24
Past performance is no guarantee of future results. All indexes are unmanaged and can’t be invested in directly. The modern design of the S&P 500 stock index was first launched in 1957. Performance back to 1950 incorporates the performance of the predecessor index, the S&P 90.
The Bottom Line
The 2024 election is shaping up to be extremely close, with polls showing a virtual tie and key swing states likely to determine the outcome on election night. As the candidates have starkly different positions on many major issues, it is likely to be another divisive and contentious affair. Given the historical patterns and the fact that markets usually dislike extreme uncertainty, investors should be prepared for higher levels of market volatility in the back half of the year.1
Did You Know?
Thank You Veterans – Your Sacrifices are Not Forgotten!
As we begin to prepare for the holidays and are awaiting the results of the presidential election, let us not forget the many sacrifices made by our Veterans. Veterans Day is observed on November 11th (regardless of the day of the week). Veterans Day differs from Memorial Day because it honors all who have served on behalf of the United States, either dead or alive, during times of war and peace. Alternatively, Memorial Day, celebrated on the last Monday in May, honors those who sacrificed their lives for the United States.
Veterans Day was originally named Armistice Day to commemorate the end of World War I (a.k.a. The Great War), and the June 28, 1919 signing of the Treaty of Versailles. An armistice (i.e., agreement) between the Allies and Germany to cease fighting was established approximately seven months prior on the eleventh hour of the eleventh day of the eleventh month. As a result, November 11, 1918, was considered the end of “the war to end all wars."3
With the Act of 1938, Armistice Day became an official holiday. Subsequently, on June 1, 1954, to address World War II and the Korean wars, Congress amended the Act of 1938 by changing the word “Armistice” to “Veterans” to honor all United States Veterans of all wars.2 On October 8,1954, another decree was issued when, Dwight Eisenhower, 34th President of the United States, wrote in a letter to the Veterans' Affairs administrator, “I have today signed a proclamation calling upon all of our citizens to observe Thursday, November 11, 1954 as Veterans Day. It is my earnest hope that all veterans, their organizations, and the entire citizenry will join hands to insure [sic] proper and widespread observance of this day." 4
The United States is not the only country to honor their Veterans after World War I. “Remembrance Day" is observed in Canada and Australia on November 11th, and Great Britain observes it on the closest Sunday to November 11th. As a sign of respect for those who sacrificed their lives, London takes a 2-minute moment of silence.3 In that spirit, please consider taking a moment of silence to appreciate all the sacrifices that Veterans have made for our great country.
Hanging out with us in the Plum Tree!
November is a time of gratitude and giving back. The Thanksgiving tradition is a celebration that is not only celebrated in the United States, but also in Canada, Germany, Liberia, Japan, Norfolk Island, Grenada, The Netherlands, and Puerto Rico. To learn more about how other cultures give thanks, check out 8 Thanksgiving Celebrations Around the World.
Valued Clients & Friends, do you want to hang out with the Plums as we give thanks? Please join us for our 8th Annual Pie Giveaway on November 26, 2024. The Pie Giveaway is always full of fun, delicious treats, a few surprises, and great company from new and old friends alike. Invitations with more details to follow.
Want a sneak preview of our Annual Pie Giveaway festivities?
Follow us and look out for our November posts.
Upcoming Events
November 12, 2024 | 12pm EST
Retain Your Brain
Can we prevent, or at least slow, the aging of our brains?
Join us to learn:
Why your brain may not be the same age as you
How brain health can affect your lifestyle and finances
Stop by our office between 12pm - 4pm and enjoy a cup of hot cider, or hot cocoa, some fall treats...and of course, pick-up your pie (feel free to drop by even if you are not picking up a pie)
Choose from Apple, Pecan, Pumpkin OR choose Donate and PlumTree will make a donation for the value of your pie to one of the following charities: Food for Others or Disaster Recovery (Rotary)
Deadline to select your pie is Friday, November 22nd
“We, too, born to freedom, and believing in freedom, are willing to fight to maintain freedom. We, and all others who believe as deeply as we do, would rather die on our feet than live on our knees.”
Franklin D. Roosevelt, 32nd President of the United States
Reference List
[1] "U.S. Election: Do Markets Care Who Wins the Election?" LPL Financial, 8 October 2024, https://www.lpl.com/research/election-central/distinguishing-fact-from-opinion.html
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors. To determine which investment(s) may be appropriate for you, please consult your financial professional prior to investing.
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk.
Indexes are unmanaged and cannot be invested into directly. Index performance is not indicative of the performance of any investment and does not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
This material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
Securities and advisory services offered through LPL Financial, a registered investment advisor and broker-dealer. Member FINRA/SIPC.
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