My name is Evan Vladem, and I’m a partner and financial advisor at Associated Investor Services. I get it... talking about money can be intimidating... So, we created a judgment-free space where there are no "dumb" questions or embarrassing situations.
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Dear Evan,
With the midterm elections approaching, I'm concerned about what this could mean for my investment portfolio. I've heard that markets historically perform well after midterm elections, but I've also heard that election years can bring significant volatility.
Between the Federal Reserve, inflation, the war in Iran, and everything else happening around the world, it feels like there's a lot of uncertainty.
Should I be preparing for a market downturn or expecting a rally after the election? Is there anything I should be doing differently with my investments?
– Election Anxiety
Dear Election Anxiety,
You're certainly not alone! Between political headlines, interest rate uncertainty, and geopolitical tensions, there's no shortage of reasons for investors to feel uneasy right now.
The good news? We have decades of market history to help put election-related concerns into perspective. And some of that history might surprise you.
Historically, midterm election years have been associated with heightened market volatility. Investors are left wondering how potential changes in Congress might affect taxes, government spending, regulations, and the broader economy. Markets generally don't like uncertainty, and elections create plenty of it.
But here's where things get interesting.
According to historical research from Fidelity, the S&P 500 has generated positive returns in approximately 95% of the 12-month periods following midterm elections since 1938. That's a pretty remarkable track record!
One possible explanation is that markets tend to respond favorably when some of the political uncertainty is removed, regardless of which party wins. Once the results are known, investors can begin focusing on the policies and economic realities ahead rather than speculating about potential outcomes.
Does that mean we should expect a market rally following November's election? Not necessarily. History provides perspective, not guarantees.
And this particular election cycle comes with its own set of challenges.
Beyond Washington, investors are navigating uncertainty surrounding the Federal Reserve, inflation, and the ongoing war in Iran. Energy prices and geopolitical tensions can influence inflation, consumer spending, and corporate profitability. Meanwhile, the Fed must balance inflation risks against economic growth and employment when determining the direction of interest rates.
We're also seeing significant investor attention on artificial intelligence and technology companies, where expectations for future earnings remain an important driver of market valuations.
In other words, while elections dominate the headlines, they're only one piece of a much larger economic puzzle. What happens with inflation, corporate earnings, and interest rates may ultimately have a greater influence on your portfolio than the election results themselves.
So, should you expect volatility or strong markets?
Potentially both!
One of the more important lessons from market history is that volatility and positive returns aren't mutually exclusive. Markets can experience meaningful declines throughout the year and still finish in positive territory. In fact, historical research from Chase suggests that midterm election years have experienced average market drawdowns of approximately 18%.
While those declines can be uncomfortable, they're also a normal part of long-term investing.
The real challenge is that nobody can consistently predict when markets will decline, how long those declines will last, or when the recovery will begin. Investors who move to cash in anticipation of a downturn face another difficult decision: when to get back in. Missing even a handful of the market's strongest days can have a meaningful impact on long-term returns.
So, what should you actually do?
My advice is not to let an election dictate your investment strategy.
Instead, consider whether your portfolio is properly diversified, aligned with your risk tolerance, and positioned to meet your financial goals. If you're approaching retirement, anticipating a major expense, or taking more risk than you're comfortable with, those are legitimate reasons to revisit your allocation. But making dramatic investment changes simply because of an upcoming election can create more problems than it solves.
Here's something I often remind investors: The market has navigated wars, recessions, inflation, political uncertainty, and countless elections throughout history. And while the road has rarely been smooth, patient, disciplined investors have historically been rewarded over the long term.
Will markets rally after November? Maybe. Could we experience additional volatility? Absolutely.
But successful investing shouldn't require you to correctly predict the next election, Federal Reserve decision, or geopolitical development.
Your financial plan should be designed to navigate uncertainty, not depend on its absence.
After all, elections come and go. Your financial goals are here to stay.
Cheers,
Evan Vladem
Partner & Financial Advisor
Associated Investor Services