How To Invest With Confidence In An Election Year

Presidential elections can be divisive and unsettling. At times, the fate of the world seems to hang in the balance. When it comes to investing, do elections really matter all that much?

While volatility is expected, long-term investors can position themselves for a brighter future, regardless of the outcome in the voting booth. In fact, overreacting to short-term volatility during election cycles can be detrimental to investment returns.

We've outlined answers to top investor questions about investing in an election year, drawing insights from data across 23 election cycles.

What typically happens to the stock market during election years?

Markets hate uncertainty, and what’s more uncertain than primary season of an election year? The range of outcomes can feel daunting. Volatility is often short-lived. After the primaries are over and each party has selected its candidate, markets have tended to return to their normal upward trajectory.

Patient investors who stay the course have often been rewarded. Since 1932, stocks have gained an average of 11.3% in the 12 months following the conclusion of the primaries (using May 31 as a proxy) compared to just 5.8% in similar periods of non-election years.

Which sectors have done best in election years?

It'd be great if there were go-to sectors to invest in every election year, however unfortunately investing isn’t that simple. Every election cycle brings its own candidates with their own policy agendas, so selecting market winners is more complex.

The health care sector has been in the crosshairs for a number of election cycles. Heated rhetoric over drug pricing put pressure on many stocks in the pharmaceutical and managed care industries. Other sectors have had similar bouts of weakness prior to elections.

Regardless of who wins, stocks with strong long-term fundamentals will often rally once the campaign spotlight fades. This pre-election market turbulence can create buying opportunities for investors with a contrarian point of view and the strength to tolerate short-term volatility.

If you have specific questions or would like to discuss your own investment strategy or financial planning needs, we welcome you to call us at 302.234.5655 or email us at contactus@covenantwealthstrategies.com to set-up a time to discuss further.

Disclosures:

Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value. Past results are not predictive of results in the future.

All investing involves risk, including loss of principal. Indexes are not investments, do not incur fee and expenses and are not professionally managed. It is not possible to invest directly in an index.

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax situation with a qualified tax advisor. The charts above are for illustrative purposes only.