Many people I have met with recently have expressed concern for the stock market performance after our upcoming presidential election. While researching for this article, I did find some interesting statistics regarding the fact that most bear markets (the bad ones) have come toward the beginning of a presidential term, and most bull markets (the good ones) have come at the end. I tend to think that’s coincidental, rather than telling of a country adjusting to its new leadership. But what we need to remember is that market downturns are completely normal. According to Ned Davis research, from 1900 through 2013, there have been 123 stock market “corrections” (down 10% or more) and 32 “bear markets” (down 20% or more). But the good news is that each decline in the market has been followed by a rally. Now of course past market performance does not guarantee future results, but if 123 out of 123 corrections have been followed by a recovery, I like our odds of recovering from the next one, whether it be after this next election or not.
This election year, I agree there is much to be concerned about regardless of which political party you may align with. I think companies may be shy to hire and/or spend cash while they await the election, but I don’t necessarily think either candidate, just by nature of being elected would send the markets spiraling. But if I am wrong, remember two things: (1) a diversified portfolio that is consistent with your needs, combined with an income strategy if appropriate, is designed to weather any storm if there is enough time to recover, and (2) you are not invested in just one market (assuming you are in one of our portfolios). Portfolios are put together taking into consideration how different markets may generally move in different directions. Large US stocks and treasury bonds, for example, are called “negatively correlated,” meaning when one goes up, the other goes down, and vice versa. So even if one market (for example S&P 500, i.e. large US) has a downturn in its future, there are other positions in your portfolio that will theoretically move differently, hopefully up! There is a whole science to this portfolio development business.
Market downturns are no fun, but they come and go, and it’s a normal part of investing. I have a hard time believing that one man or woman could be responsible for a significant and lasting market decline, especially considering the 535 people in congress that all have a hand in policy making as well. I’m watching this upcoming electing with trepid eyes, but not because of markets… because of many, many other things.
Alyssa McNamara Reed, CFP®
CERTIFIED FINANCIAL PLANNERTM