Five Ways to Stay Grounded During Election Season

This article was originally featured in Inc.

As business owners and entrepreneurs, it’s easy to get caught up in thinking about how this election cycle might impact us. After all, everywhere you turn is media noise vying for your attention. Depending on your market, your customers, and your value proposition, this season may be incredibly relevant to your business. It feels like a lot.

As a medium-sized advisory business with locations in two Southeast markets and a large and thoughtful wealth management client base, we are hearing more than the usual questions, not only about the election itself, but about the potential impact of a new occupant in the White House. Clients are particularly concerned about policy terms that could be on the horizon. From speculating on tax, spending and trade, to the potential for policy shifts in sectors like healthcare, immigration, and climate, it is tempting to try to anticipate what will happen. It’s even more tempting to try to anticipate what it might mean for you, your business, and your family.

Anticipate, yes—react, no

Here’s some useful perspective: Based on recent research into the economic impact of elections over a long-time horizon, my firm confirmed something we have counseled for a long time: Regardless of how unprecedented this year’s election feels, the outcome will likely have a limited impact on the stock market 12 months from now. That doesn’t mean it’s inconsequential; in fact, history reveals that short-term, daily market volatility in election years is nearly double that of non-election years. The key is not to react to that volatility, and to maintain a cool head and a steady hand – something your financial or wealth advisor is likely telling you right now.

In fact, if we broaden the scope beyond elections, we can identify over 100 times the media created worry that had investors question if they should sell…and yet, the trendline of the S&P 500 continues to increase, underscoring that it’s time in the stock market, rather than timing the market, that’s important.

Coming back to elections, investors will do well to recognize that campaign rhetoric seldom translates into economic outcomes. Anticipating what might happen is risky. Both long and short term, smart investors will stay focused on the broader stock market and its sectors versus who occupies the White House and what they say as presidential candidates.

What history tells us

Our recent historical review of the stock market’s performance across election and non-election years tells us that financial markets actually exhibit an enduring resilience even amidst political uncertainty.

As the U.S. presidential election season approaches its conclusion, it’s interesting to note that there is nuance based on who prevails. Historically, when the incumbent party loses the election, the stock market experiences intensified corrections prior to Election Day. One year later, however, that market performance is virtually the same, suggesting that volatility is short-lived. It’s not just the top of the ticket, but also the down ballot races that will shape our political and economic future longer term. In every presidential election year, there are three possible scenarios for outcomes:

• Unified government: The president, House majority, and Senate majority are all the same party.  
• Unified Congress: The Senate and House majorities are the same party, which is different than the president’s party.
• Split Congress: The House majority and the Senate majority are different parties.

Our regression analysis against the relative performance for years under these three different election scenarios reveals a verifiable relationship only in the split Congress scenario.

Instead, economic indicators such as GDP growth, unemployment rates, and inflation trends play a more significant role in shaping market returns—typically exerting a stronger influence than the elections outcomes.

Ultimately, our analysis points to an enduring correlation between economic fundamentals and market performance, underscoring why we need to exercise sound financial principles to guide investment decisions, versus reacting to the emotion of an election cycle.

Policy versus politics

It is true that policy shifts, whether by taxes, spending, healthcare, trade, immigration, or climate change, for example, will over time, impact the economy. Significant policy changes typically require one party to control both the House and the Senate, and these changes take time to take effect. Traditionally, we observe outperformance from the winning parties’ constituents in the months leading up to the election and the immediate month post-election.

The same group of stocks may not sustain their outperformance post-election, especially throughout the entire presidential term. Historically, macroeconomic factors tend to outweigh policy directions. Looking at your business and investments on longer term horizons—one, three, and five years out, for example—is a good way to keep perspective.

5 ways to keep perspective

1. Like many business decisions, your election perspective should be agnostic. Investment and other financial decisions aren’t just nonpartisan, they should be apolitical.

2. Financial and investment decisions should be guided by forward-looking strategy and not backward-looking or reactionary.

3. Recognize that polling—for who will win the White House—is largely fraught, but asking your customers how they are doing and how you can best support them is never a bad idea.

4. Know that market volatility and election volatility are two different things.

5. Remember that financial and tax preparation is always important, and if the sunsetting of the Tax Cuts and Jobs Act in 2025 will impact your finances, make sure your planning is well-underway.

At the end of the day, as business owners and entrepreneurs, we are well-served by being a discerning consumer of news, by sticking to the fundamentals, and by maintaining adequate cash reserves (always, not just in an election season) that allow for flexibility and options.

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