The American election – should we be worried?
When it comes to considering how the markets will react to the result of the upcoming American election, it’s worth stepping back from the daily media noise to look over a longer period. Much of the world is watching anxiously to see which way the election will go in the most powerful nation on earth, but do we need to worry when it comes to our investments?
History would suggest not. Over nearly 100 years of US presidential terms, stocks have consistently marched upward.
Whilst there may be short-term volatility around an election result, over the longer term, other factors have just as much bearing on stock and bond prices: international geopolitical events, technological advances, interest rates, and the outlook for economic growth. Data for the stock market going back to 1926 shows that returns in months when presidential elections took place have not tended to be that different from returns in any other month.
Source: Dimensional Fund Advisors
Given the polarisation of the electorate in the US, the 2024 US election has taken on an outsized importance. A lot of emotion is being vented by both sides. However, when it comes down to the sober, day-to-day running of the country after the election, it is most likely to be far less exciting and markets will continue with their “business as usual”: assessing companies and their likely returns, and pricing them accordingly.
For investors, comfort in the face of any volatility around the election should come from having a carefully crafted financial plan that takes into account individual risk tolerance and saving and spending goals. If nothing has changed, no action is necessary. This disciplined approach to investing is the best way to reap the rewards of the market over the long term.
