Keeping Calm in a Noisy Stock Market
September 18, 2024
We’re almost there. We can see the finish line. There’s light at the end of the tunnel.
Yes friends, we are almost done with the presidential elections for another four years. In the era of social media and cable news, elections today are not only a rather unpleasant experience for most Americans, but there is evidence that they create considerable anxiety for investors who prefer to “wait it out” on the sidelines instead of investing. Beyond that, many normal investors become unnecessarily conservative in the event their preferred governing party comes up short.
To be fair, it is a basic truth of stock investing that typically, economic and social certainty are preferred for a healthy stock market and elections are naturally an uncertain and unpredictable event. And as the election heats up in the final months, and even in the few weeks thereafter, the headlines from whatever news source you consume will sound alarmist and sensational about what happens next. This anxiety can lead to unnecessary risk-avoidance when it comes to your portfolio.
It's time to take a breath and put in earplugs.
Since I was a history major in undergrad, I find comfort in relying on past patterns when the volume of stock market “noise” gets turned up considerably. And I can promise the noise over the next several weeks will be deafening. Let’s quickly address a couple common worries investors typically have this time of year.
Worry #1 – “What do you think will happen to the market before the election?”
What History Tells Us: It has been and almost always will be a statistically insignificant event. The first 8 months of 2024 have already been quite robust so if you have managed to stay in the game this entire time – good job! Since the WWII era, the S&P 500 typically returns a modest +7% in presidential election years, compared to +10% in all years. As of the time of this writing, it is +15% for 2024. I would venture to guess that the remaining three months of the year will be rather unremarkable and potentially finish down somewhat if we return to the historical mean. Short-term volatility is to be expected as the election nears. But short of a truly terrible fourth quarter, investors are looking at a very solid 2024 total return.
Worry #2 – “Which party will be better for the market?”
What History Tells Us: Once again, it is statistically inconclusive. While the market tends to approve of a Democratic president with a Republican or divided-party Congress, all collective categories of divided government underperform uniparty outcomes. Meanwhile, uniparty rule tends to produce fairly stable, but unremarkable, returns compared to the overall market.
So while different government structures will have different priorities and some stock sectors will do better than others, the reality is that a well-diversified portfolio should be able to withstand whatever party or parties come to power.
While the next several weeks of breaking news, television ads, and negative headlines will flood our brains and possibly create some anxiety, just remember that these events are all relatively short term. The appropriate way to be prepared is to have a well-diversified portfolio that properly reflects your risk tolerance.
Please do not hesitate to reach out to Iowa State Bank Trust & Wealth Management to discuss further. Call 515-246-8240 to get connected with an Trust Officer today!
Dylan Dinkla, J.D., CFP®, VP and Trust Officer
Dylan received a B.A. in history from Simpson College and his law degree from Washburn University in Topeka, KS. He is a Certified Financial Planner™ and has received his C.T.F.A. designation. He joined Iowa State Bank after serving seven years as a trust officer. He is a board member of the Salvation Army of Des Moines and Mid-Iowa Estate and Financial Planners and referees high school football and basketball.