Understanding Stock Market Trends: Do Elections Trigger Post-Election Rallies?
by Jeremy Reif, CRPS 9-6-24
The stock markets do not like uncertainty, as uncertainty provides the markets with volatility. Volatility changes investors’ raw emotions, and emotions cause people to make rash decisions. Investing during normal markets can be unnerving during a normal year, but investing during an election year can bring uncertainty to the market every four years. What should you expect in the markets during an election year?
With any election year, there is presidential candidate mudslinging. Once upon a time, you found out that presidential candidate did something horrible and offensive, then tried to project and influence our feelings to sway our vote. The closer you get to the election date, the more heated and persistent the messages become. As to how this affects the markets, the muddy waters mean that the stock market does not know who will win the election which thus the uncertainty.
The stock markets do not care who wins an election, as it has no feelings. The markets only want to know who is the winner and what is the political landscape as to what the president-elect is for or against. Once the markets know that they are pro or anti-something, they can reposition their investments to capture categories that might be in line for doing well over the next four years.
Since the Great Depression, the stock markets have had more positive results during an election year than declines. Election year results are slightly better than to the tune of positive markets four out of every five election years. This election year has a a major curveball to throw at us. The interest rates are at a ten year high, will the Federal Reserve lower them as the economy continues to slow down? This will have a dramatic effect on what the economy will do the remainder of 2024 and moving into 2025.
Remember, even though we can draw conclusions from historical data, it does not mean that history will repeat itself. Best of luck with your own investing.