In a few days, U.S. voters will head to polling sites across the nation to cast their ballot in the 2024 U.S. presidential election. Also in play are all 435 House seats and 34 in the Senate. While this year’s presidential election is unique in some regards, in many ways it’s in line with previous contests.
Many investors are thinking how the election will impact the capital markets and, in turn, their portfolios – perhaps overthinking. With the 24/7 news cycle in high gear for the campaign homestretch, investors can easily come away with angst, believing election results will have an outsized impact on their investments. But based on how the markets have historically performed, I don’t believe the election will be the major market mover and shaker that some believe.
That’s not to say the election will occur in a vacuum. Odds are, there will be some short-term volatility for market performance. However, just as we ponder the chicken and egg conundrum, we should also consider this: Do markets influence elections, or do elections affect markets? The answer is yes.
Do markets influence elections, or do elections affect markets? The answer is yes.
For most voters, their current economic and financial situation – and the candidate they believe will improve it – informs their vote. Perhaps the most pressing example is tax policy. How will this election impact the Tax Cut & Jobs Act provisions set to expire at the end of 2025? There are clear policy priorities and differences between the candidates on this topic, as well as tariffs and assorted other issues. Of course, the impact of the executive branch victor will be either bolstered or mitigated depending upon which party will hold majorities in the House and Senate.
Likewise, there are multiple factors with the potential to sway market behavior – and the upcoming election is simply one of them.
Right now, the biggest market influencer is uncertainty. The markets hate uncertainty. Who doesn’t? With the race deemed too close to call by most pundits, market participants are unsure of how to proceed.
But there are things we do know: We’ve got a strong economy, a more accommodative Federal Reserve interest-rate environment and healthy employment data. Corporate earnings have proven to be resilient – and good earnings are good for stock prices. Geopolitics are always in play. This year has seen several concerning situations, which have had short-term volatility, but haven’t negatively impacted markets long-term. Perhaps most importantly, investors working toward long-term goals continue to have time on their side.
For financial advisors offering guidance to apprehensive clients in this climate, the most impactful services you can deliver are informed perspective, objectivity and a steady focus on long-term outcomes. I consistently hear from advisors that their clients are rooted in their relationship – not presidential elections. And for those who express concern, while past performance cannot guarantee future results, offering clients some historical context around market performance in previous election years may prove helpful in calming their concerns. In addition, reminding them of the planning steps and protections put in place to ride out short-term volatility can assuage frayed nerves.
There is a lot of noise out there, much of it designed to generate clicks and ratings.
There is a lot of noise out there, much of it designed to generate clicks and ratings. Be the voice of reason, the voice of calm, for your clients. Engage in meaningful conversations with them to uncover their fears and using your skill, experience and expertise, assure them they are well positioned for today and tomorrow, no matter who is in the White House.
Tarah Williams is President and Chief Operating Officer at Prospera Financial Services, a wealth management firm supporting a nationwide network of independent advisors.
