Election seasons have a way of making investors nervous. The headlines get louder, political opinions become more polarized, and it can feel as though the outcome of an election will determine what happens next in the stock market.
I understand that feeling. When we care about the future of our country, it is natural to wonder how political changes might affect the economy, our investments, and our financial plans.
Recently, I sat down with Bree Edgerly, our Business Development Manager, for a By Your Side Chat to discuss elections and the stock market. We explored historical market performance during presidential election cycles, what tends to happen during midterm elections, and how investors can use historical data to put today's uncertainty into perspective.
One of the biggest takeaways for me is that while we cannot control political outcomes or market movements, we can control how we respond to them.
Political Uncertainty Is Nothing New
It's easy to look at today's political environment and think we've never experienced anything quite like it. But history tells a different story.
Throughout our nation's history, elections have been contentious. We discussed examples such as the disputed presidential election of 1824, the contested results of 1876, and the exceptionally close Kennedy-Nixon election in 1960.
Each of those elections unfolded in its own political and economic environment. The circumstances were different, but the uncertainty surrounding the outcomes was familiar.
That historical perspective matters because investors can sometimes allow the emotions of the moment to overshadow the bigger picture. Political events can certainly influence economic policy, industries, and financial markets. But we shouldn't assume that every contentious election will lead to a particular market outcome.
Instead, I believe it's more productive to examine the available data, understand the historical context, and consider what the information may mean for our investment decisions.
History doesn't tell us exactly what will happen next. It can, however, help us ask better questions.
What the Stock Market Has Historically Done During Presidential Election Cycles
One of the areas Bree and I explored was the relationship between presidential election cycles and stock market performance.
Looking at historical S&P 500 returns dating back to 1950, the average annual returns I discussed were:
Year one: 7.9%
Year two: 4.6%
Year three: 17.2%
Year four: 7.3%
In this historical analysis, the second year of a presidential term had the lowest average return, while the third year had the highest.
I think this is useful information, particularly when we approach a midterm election year and investors begin wondering whether political uncertainty should change their investment strategy.
But it's important to understand what these numbers do—and don't—tell us.
An average is a way of describing what happened across a collection of historical periods. It is not a promise about what will happen in the next election cycle. Markets can perform very differently from historical averages, and any individual year can bring unexpected results.
We also discussed a longer historical analysis dating back to 1933. Based on the figures I shared, approximately 70% of presidential four-year cycles had positive stock market returns in all four years.
For me, the value of looking at these statistics is perspective. Political cycles are one factor worth understanding, but they are only one piece of a much larger investment picture. Economic growth, corporate earnings, interest rates, valuations, and geopolitical developments can all influence market performance.
Rather than treating an election calendar as a market forecast, I prefer to use historical information as one input in a broader, research-driven process.
Midterm Elections: What Does History Tell Us?
Midterm elections are particularly interesting because they frequently bring the possibility of a shift in congressional control.
Historically, the president's party has often lost seats in Congress during midterm elections. In our discussion, I highlighted data from midterms dating back to 1946 showing that the president's party lost seats in the House of Representatives in 18 of 20 elections, with an average net loss of approximately 25.7 seats.
The Senate picture was somewhat different. The president's party experienced net losses in 13 of those 20 elections.
These patterns help explain why midterm elections can create uncertainty around future policy priorities. Changes in congressional control can affect the legislative environment, and investors naturally want to understand what those changes might mean for businesses and markets.
However, I don't believe an election result should automatically dictate an investment decision.
The important question isn't simply which party gains or loses seats. It's what the resulting policy environment could mean for the economy, individual industries, and the investments we own.
Even then, the relationship between politics and markets isn't always straightforward. Markets respond to a wide range of influences, and expectations about political outcomes may already be reflected in asset prices before the election takes place.
Historical context can help us understand the possibilities, but thoughtful analysis is still necessary to determine whether any particular development warrants a portfolio adjustment.
My Approach: Control What You Can Control
If there is one lesson I've taken from my years in wealth management, it is this: Control what you can control.
We spend an enormous amount of time worrying about things that are outside our influence. During an election season, that might mean worrying about who will win, what Congress will do, or which policies will become priorities.
But none of us can determine those outcomes.
What we can control is how we prepare, how we evaluate new information, and how we manage money in response to changing conditions.
That's where I believe disciplined wealth management makes a difference.
At SecondHalf Coach Wealth Management, our work doesn't stop at selecting investments and hoping for the best. We continually evaluate market conditions, research opportunities, monitor the sectors in which we invest, and consider whether adjustments are warranted.
That process takes time and effort. It requires reading, analysis, ongoing discussion, and a willingness to challenge our own assumptions.
It's certainly easier to adopt a set-it-and-forget-it approach or assume that every period of volatility should simply be ignored. But I believe investors deserve more than a reflexive response to uncertainty.
That doesn't mean making changes just to feel productive. Adjustments should have a purpose and be supported by research and a clear rationale. They should also remain consistent with a client's goals, time horizon, and ability to tolerate risk.
Sometimes, the appropriate response will be to maintain an existing strategy. Other times, changing circumstances may justify a different approach.
The key is to make that decision deliberately rather than allowing fear, excitement, or political opinion to make it for us.
We Don't Have to Be Optimistic or Pessimistic. We Can Be Opportunistic.
Bree made a point during our conversation that I thought was particularly meaningful. She observed that periods of change and volatility, while sometimes uncomfortable, can also present opportunities.
I've often described our approach as being opportunistic rather than simply optimistic or pessimistic.
Optimism and pessimism are emotional responses to what we think might happen. Being opportunistic is about identifying what we can do with the information available to us.
That distinction matters in investing.
When markets are rising consistently, falling sharply, or moving unpredictably, the circumstances are different. Each environment presents its own challenges and potential opportunities. A strategy that makes sense under one set of conditions may not be the most appropriate under another.
Our responsibility is to evaluate those conditions and determine whether a change in strategy is justified.
Volatility alone doesn't automatically make an investment attractive, just as uncertainty doesn't automatically mean it's time to sell. The research, the underlying fundamentals, the potential risks, and the role an investment plays in a portfolio all matter.
This is why we spend so much time monitoring markets and evaluating the investments we hold. We're not trying to predict every headline or anticipate every short-term market movement. We're trying to make informed decisions based on the circumstances in front of us.
Investing Is Personal, Even When the Headlines Are Political
Another important consideration is that no two clients have exactly the same financial situation.
Someone who is approaching retirement may have different concerns from someone who is decades away from needing their investments. A family preparing for a major expense may have different priorities from someone focused on long-term wealth accumulation.
That's why I don't believe there is one universal answer to how investors should respond to an election.
The appropriate strategy depends on the individual, their financial goals, their time horizon, their risk tolerance, and the broader structure of their financial plan.
Market history can provide useful context, but it cannot replace that personal analysis.
It is also why I value the conversations we have with our clients. When uncertainty increases, people naturally have questions. Our role is to help them understand what's happening, explain how we are evaluating it, and determine whether anything needs to change in their particular situation.
Sometimes the most valuable thing we can do is provide perspective. Other times, it may mean making a thoughtful adjustment. Either way, the decision should be grounded in the client's needs rather than the emotional intensity of the news cycle.
Looking Beyond the Headlines
I enjoy these conversations because they reinforce something important about the work we do: investing is an ongoing process of learning, evaluating, and adapting.
I spend a great deal of time studying markets, reviewing research, and thinking about how changing conditions might affect our clients. I also continue to learn from the people around me, including colleagues like Bree, whose perspective adds value to the work we do together.
We will never be able to eliminate uncertainty from investing. Nor should we expect historical patterns to predict every future outcome.
What we can do is approach uncertainty with preparation, perspective, and a willingness to make informed decisions when circumstances warrant them.
As we move through election seasons and other periods of market volatility, I encourage investors to look beyond the headlines, ask questions, and consider how current events fit into their broader financial plans.
You don't have to control everything that's happening in the world to make thoughtful decisions about your financial future.
You just need to focus on the things you can control.
And that's exactly where we believe our work begins.
Sources
www.wtwealthmanagement.com/whitepapers/2024-08/
www.wtwealthmanagement.com/whitepapers/2024-07/
https://www.dadavidson.com/Perspectives-Insights/Perspectives-Insights-Article/ArticleID/7277/Midterms-Markets-Long-Term-Look-Political-Cycles
https://www.presidency.ucsb.edu/statistics/data/seats-congress-gainedlost-the-presidents-party-mid-term-elections
https://www.capitalgroup.com/institutions/it/en/insights/articles/how-us-midterm-elections-affect-the-markets.html
https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-themes/us-elections.html
https://www.spglobal.com/en/research-insights/market-insights/sp-500-and-the-u-s-presidential-election
https://pages.stern.nyu.edu/adamodar/New_Home_Page/datafile/histretSPX.html