Presidential Election Years and our SWAG Wealth Management Philosophy
As we embark on the journey through 2024, a pivotal presidential election year, it is imperative to understand how this period can impact our investment strategies. The Strategic Wealth Alpha GPS™ (SWAG) Retirement Roadmap, especially its Growth Phase, offers a compelling guide to navigate these times, fostering a long-term perspective that transcends short-term political fluctuations and market volatilities.
The SWAG Philosophy: The SWAG Retirement Roadmap is a holistic planning process, developed to address wealth management in a comprehensive manner. It harnesses technology, science, data analytics, and expertise to create a path towards a sound and fulfilling retirement journey. This method is relevant in presidential election years, where market fluctuations can be more pronounced because of political uncertainties.
Performance of U.S. Stock and Presidents: Throughout the ebbs and flows of US presidential election seasons, it's common for investors to speculate that the stock market might fare better if a certain party or candidate triumphs. Yet, empirical market data compellingly show that no single political party holds the key to stock market success. Over the long haul, market performance has trended upward irrespective of which party occupies the Oval Office. From January 1925 through December 2023, U.S. stocks have delivered an average annualized return of 15.4% under Democratic administrations and 9.0% under Republican ones—a testament to positive growth under both. This variation in returns is often attributed more to broader economic and market factors than to the influence of any particular president
Presidential Tenures and U.S. Stock Performance: Historical analysis of stock market returns during presidential election years unveils a remarkable trend. Since 1925, the S&P 500 has shown positive performance in over 80% of these years, with an average return of 11.4%. These figures aren't mere numbers; they signify the market's resilience and potential in periods of political transition. This fascinating statistic showcases the often positive nature of election years for the stock market. As Sir John Templeton wisely said, "Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria." Today's skepticism, prevalent in many investors' minds, may actually be a harbinger of resilient 2024.
The Second-Year Slump and the Fourth-Year Surge: An interesting pattern is observed in the performance in a president's second year versus their fourth (election) year. Post a downturn in the second year, like in 2022, the market has historically risen in the subsequent fourth year, every time since 1932. This suggests a potential phase of recovery and growth in 2024, shining a ray of hope for investors. One might think that the stock market favors a particular political party, but the reality is different. Since 1925, U.S. stocks have shown an average annualized return of 15.4% under Democratic presidents and 9.0% under Republican presidents - a clear indication that the market thrives under both parties. This underscores a vital lesson: economic and market factors, rather than political affiliations, drive stock market performance.
First-Half Caution, Second-Half Celebration in Election Years: Reflecting on historical stock market returns, presidential election years often present a distinct pattern where returns are typically subdued in the early months but tend to pick up as the year advances. This can be attributed to the decrease in uncertainty as the electoral narrative unfolds. The fervor of early campaign rhetoric might initially dampen market sentiment, but as policies and the feasibility of legislative changes become clearer, uncertainty diminishes, providing a boost to the market.
The year 2024 may not be solely characterized by a year-end rally. While historical averages suggest that election years tend to see an upswing towards the end, it's worth noting that several significant early-year declines, particularly under Republican presidencies, have skewed these averages. Out of eight election years that ended negatively, six were under Republican presidents, often coinciding with or following recessions—times that typically increase the chances of a change in the ruling party.
The common, albeit mistaken, view is that Republican leadership is pro-business, while Democratic leadership is not, leading to the belief that a shift from Republican to Democrat could introduce less favorable market policies. However, 2024 is an election year with a Democratic incumbent, which could either mean a continuation of the current policies or a pivot to a new administration that the market may perceive as business-friendly. During Democratic presidencies, the stock market has shown a tendency for consistent positivity, averaging +6.4% in the first half and +7.1% in the second half of the fourth year. One might be tempted to interpret these figures as suggesting that Democratic presidents are invariably better for the stock market. However, such a conclusion would be an oversimplification, as these data points reflect only a single year within a presidential term. Broadly speaking, the U.S. stock market has experienced both gains and losses under the leadership of both parties. Focusing too narrowly on the political party or individual presidents may lead investors away from the essential truth: U.S. election years are more often positive for the market than not. Overlooking this trend could be a costly mistake for any investor.
Aligning SWAG with Historical Market Trends: Historical patterns show significant stock market growth during presidential election years, irrespective of the political party in power. This aligns with the SWAG Roadmap's emphasis on long-term, strategic investing, rather than reactive decisions based on short-term political events. In the Growth Phase of the SWAG Roadmap, we focus on leveraging these historical insights, ensuring that our investment strategies are not derailed by the emotional rollercoaster of election cycles.
Embracing the SWAG Segmentation Planning: The SWAG Retirement Roadmap incorporates segmentation planning, a method that divides your money into different segments, each designed for specific stages of your financial life in retirement. This approach is particularly valuable during election years when market volatility can impact different asset classes in varying ways. For example, the 'Income Now Stage' of the SWAG Roadmap focuses on ensuring liquidity and safety for immediate needs. During an election year, this stage becomes crucial in providing stability amidst market fluctuations.
In the Growth Phase, the SWAG Roadmap emphasizes investing in assets that offer long-term growth potential, balancing this with the need for stability and liquidity in the short term. This phase is critical during an election year, where the market may present both challenges and opportunities for growth.
Mitigating Emotional Decision-Making: A key aspect of the SWAG Retirement Roadmap is its focus on mitigating emotional decision-making. This is especially pertinent during presidential election years when market sentiments can be swayed by political developments. The SWAG Roadmap equips us to maintain a steady course, grounded in a well-thought-out strategy rather than momentary impulses.
Looking Forward with Confidence: As we progress through 2024, the SWAG Retirement Roadmap will be our compass, guiding us through the potential ups and downs of the election year. By adhering to its principles, particularly in the Growth Phase, we can confidently navigate the year, capitalizing on opportunities for long-term wealth growth while maintaining a stable, emotion-free approach to investing.
Remember, "Knowledge is Power!" Armed with the strategic insights from the SWAG Retirement Roadmap and a clear understanding of historical market trends, we are well-equipped to traverse the investment landscape of a presidential election year, turning potential challenges into lasting growth and prosperity.
With Warm Regards,
Tony Gomes
Founder & CEO Advanced Wealth Management
Content Disclosure: This information is general in nature and has been prepared solely for informational and educational purposes and does not constitute an offer or a recommendation to buy or sell any particular security or to adopt any specific investment strategy. It's not a substitute for professional accounting, legal, tax, insurance, or investment counsel. While we believe the information shared is both accurate and reliable, we don't guarantee its completeness or precision. The insights might include forecasts, opinions, and discussions about economic conditions, market scenarios, or investment strategies. However, these are subject to change, and there's no assurance they'll prove accurate.
