Pete the Planner: Market will get its footing this election year

Ah, the stock market—the heartbeat of our financial world. It pumps with the adrenaline of investors, rising and falling with the rhythm of global events and economic shifts. But one recurring event always seems to send shockwaves through its system: a presidential election year.

As we gear up for another round of political jousting and campaign promises, it’s worth taking a closer look at how the stock market tends to react during these tumultuous times. So, buckle up, dear readers, because we’re about to embark on a wild ride through the peaks and valleys of election-year investing.

First things first. Let’s address the elephant in the room: uncertainty. Presidential elections are like a high-stakes poker game, with investors anxiously waiting to see who holds the winning hand. As we all know, markets despise uncertainty. So it’s no surprise that volatility tends to spike in the lead-up to Election Day. This might prove especially true this year given the various number of court cases involved in the run-up.

But here’s the thing: Despite the nail-biting moments and hair-raising fluctuations, history has shown us that the stock market has a remarkable ability to weather the storm. In fact, looking back over the past century, the S&P 500 has delivered positive returns in most presidential election years. That’s right, even amid political pandemonium, the market has a knack for finding its footing. I have to admit—even though I know that to be true—it still surprises me every time because each perceived crisis or unprecedented event feels so much worse than the last.

Of course, that’s not to say it’s all smooth sailing. Far from it. Election years are notorious for their unpredictability, and investors would do well to brace themselves for a bumpy ride. From trade tensions and policy debates to campaign trail drama and surprise outcomes, there’s no shortage of factors that can send shockwaves through the market.

So what’s an investor to do in the face of such uncertainty? Well, as your dear old granny used to say, “Keep calm and carry on.” While it might be tempting to panic and hit the sell button at the first sign of trouble, history has shown us that patience pays off in the long run. Instead of succumbing to fear and speculation, it’s important to stay focused on the fundamentals and stick to your investment strategy.

That being said, it’s also worth keeping a close eye on the candidates and their proposed policies. While the market tends to shrug off political theatrics in the grand scheme of things, certain policy proposals can have a significant impact on specific sectors or industries. For example, health care stocks might rally or plummet depending on the candidates’ health care reform plans, while energy stocks could be affected by their stance on fossil fuels and renewable energy.

Of course, trying to time the market based on political outcomes is a risky game best left to the gamblers in Las Vegas. Instead, a diversified portfolio that’s well-positioned to weather whatever storms may come its way is the key to long-term success. By spreading your investments across a mix of asset classes and sectors, you can help mitigate risk and increase your chances of coming out ahead in the end.

Now, I know what you’re thinking: “But Pete, what about the dreaded ‘election year curse’?” Ah, yes, the infamous phenomenon that some claim casts a dark shadow over the stock market every four years. While it’s true that election years have historically seen slightly lower returns than have non-election years, it’s important to remember that correlation does not equal causation.

In other words, just because the market tends to be a bit more skittish during election years doesn’t mean the elections themselves are to blame. Myriad factors are at play, from economic indicators and global events to corporate earnings and monetary policy decisions. So while it’s wise to proceed with caution, it’s also important to take a step back and look at the bigger picture.

In the end, investing in the stock market during a presidential election year is like riding a roller coaster blindfolded—you never know what twists and turns lie ahead, yet you know twists and turns lie ahead. But by staying disciplined, diversifying your portfolio, and focusing on the long term, you can navigate the ups and downs with confidence.

So fasten your seat belts and enjoy the ride. After all, the thrill of the stock market is what keeps us coming back for more.•

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Dunn is CEO of Your Money Line powered by Pete the Planner, an employee-benefit organization focused on solving employees’ financial challenges. Email your financial questions to askpete@petetheplanner.com.