The 2024 presidential election is just a few months away, urging investors to prepare for what could be significant economic changes that may strengthen or wreck their investment portfolio.
The financial markets are widely known to be erratic and unpredictable during the election season, causing worry among investors. A recent survey from investment company Betterment found that more than half of investors (57%) are feeling anxious or scared about the upcoming November elections. In comparison, only 26% said they are optimistic about the presidential election while 21% said they are excited.
By generations, boomers---born from approximately 1946 to 1964---were the most concerned about the elections (31%). They were followed by Gen X (29%) and Gen Z (23%). Millennials were the only generation that did not rank the upcoming presidential election within their top three financial concerns this year, according to the survey.
Do the Elections Really Affect Investment Portfolios?
The outcome of presidential elections typically do not have a significant effect on market performance. Market performance is affected by many other factors, most of which are unforeseeable. However, how the market reacts to economic factors during the election season can have drastic effects. This is especially true during a contentious election year.
By history, there is evidence showing volatility in the markets in the months before an election. For instance, the S&P 500 slumped in the months before the 2008 election. In early July of that year, the Dow Jones Industrial Average traded below 11,000---the first time in over two years. In September, the financial markets were down nearly 20% from its October 2007 peaks. Major investment banking firm Lehman Brothers also announced the largest bankruptcy filing in US history at the time.
The 2008 slump was mostly caused by the global financial crisis. However, the uncertainty about the crisis management strategies of the presidential candidates also played a role.
A similar drop in the Dow Jones Industrial Average was also seen on election night in 2016 as results showed support for Donald Trump. The market recovered in the following days as more investors expected pro-business policies after Trump won.
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