The Election and Your Investments

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What impact on investments from the 2024 presidential election should an investor expect? There are several potential impacts on investments stemming from the upcoming 2024 presidential election that investors should consider. Understanding these factors can help in making informed decisions and adjusting investment strategies accordingly. Below are some key considerations I think are timely and relevant. However, first things first. Regardless of the event and its potential short-term impact on your investment portfolio, the most important consideration is your investment plan. How is your plan doing with respect to your goals? If the plan in place is working, fight the urge to make changes to investment holdings because of the event and chase expected, likely temporary, winners from the outcome. Here's some potential impacts on the markets and your investment leading up to the election and beyond:

*Market Volatility-

Historically the presidential election has created controversy, speculation, drama and uncertainty. As the lead-up to the election creates uncertainty in the markets, volatility increases. Investors may react to polls, debates, and political developments, which can cause short-term fluctuations in stock prices and bond yields.

*Policy Changes-

Potential tax policy changes, especially this election, can impact your investments. Depending on the outcome, changes in tax policy (such as capital gains tax rates or corporate tax rates) could directly impact investment returns. Higher taxes could discourage investment and affect stock market performance. The unrealistic proposal to tax unrealized gains makes this year's election more unique than most relative to potential policy changes.

*Regulatory Changes-

Different administrations may impact sectors through regulations (e.g., financial regulations, environmental policies). Industries such as energy, healthcare, and technology could see significant changes based on the winning candidate's policies.

*Monetary Policy Influence-

Federal Reserve decisions impacting interest rates and their influence on inflation and the macro economy will be closely followed leading up to and after the election this year. The election outcome could influence the Fed's monetary policy, especially if a candidate’s economic proposals are perceived to conflict with inflation management or economic stability. Potential shifts in interest rates could impact bond prices and stock valuations.

*Sector Performance-

Specific sectors may benefit or suffer, depending on the election results. For example, a candidate advocating for green/clean energy could uplift renewable energy stocks, while a pro-fossil fuel agenda promoting domestic fracking might benefit traditional energy sectors. As this market rotation dynamic and shift in investment fund flow favoring certain sectors at the expense of others can occur, market volatility can increase.

*Geopolitical and Trade Factors-

Depending on the candidates’ positions, trade policies and international relations may change, affecting global supply chains and multinational corporations. Investors with international exposure should monitor potential policy shifts that could impact foreign investments.

*Long-term Economic Outlook-

Potential new policies implemented by the new administration could affect the long-term economic outlook. For example, aggressive fiscal spending could stimulate growth, while tightened regulations might hinder it. Investors should factor this into their long-term planning and asset allocation (as said above, consider sector selection).

In this week's presidential election debates between former President Donald Trump and Vice President Kamala Harris, the discourse revealed pivotal insights that may significantly influence market dynamics and investor sentiment, particularly among high net worth individuals.

From an investment perspective, Trump's debate performance was characterized by a focus on economic growth, tax policy, and deregulation, which appeal to investors seeking favorable conditions for business expansion and capital gains. His proposals aimed to stimulate the economy through robust tax incentives and reduced regulatory burdens on corporations, suggesting a potential boon for sectors such as energy, manufacturing, and technology. However, there were concerns raised regarding trade policies and their implications for global markets, particularly in light of ongoing geopolitical tensions.

Conversely, Harris emphasized a comprehensive approach to social equity, healthcare reform, and climate change initiatives. Her narrative aligned with a progressive agenda that seeks to invest in sustainable industries and technologies, which, while potentially disruptive to traditional sectors, may attract long-term investors interested in ESG (Environmental, Social, Governance) criteria. The implications of her policies could signal a shift towards sustainable investing and increased regulatory oversight, which investors need to factor into their portfolios.

Ultimately, both candidates presented divergent visions for the future economic landscape. Investors should stay keep perspective with regard to any shifts in policy implications on asset allocation, risk management, and sector performance. The debates not only highlighted their stark ideological differences but also served as a critical platform for positioning investment strategies in anticipation of the incoming administration’s priorities. As the election approaches, high net worth individuals and investors in general would benefit from close monitoring of these developments, leveraging insights from the debate to refine their investment strategies accordingly. Tax implications from a potential expiration in 2025 of the Trump TCJA (Tax Cuts & Jobs Act) passed in 2017 may be an especially timely focal point for some high bracket individual tax payers and business owners.

What you can do...

Stick to your plan. While slight adjustments may be prudent, wholesale changes to your investment plan may not be. Other things you can control and should do:

Keep proper perspective. While presidential elections can spark volatility and make markets move in the short-term, history suggests that election outcomes have a muted long-term impact on the stock market. In a report from Retirement Researcher, data from 1926 through 2023 shows the SP 500's average returns between unified Republican and Democratic administrations is nearly the same. The results below indicate the best election outcome for stocks is a divided one; with a Democratic president and the Republicans controlled at least one house of Congress.

Know the noise. It's essential to recognize how investor sentiment may sway with political news. While experienced investors typically stay rational, they should still be aware of how market psychology can cause swift changes in stock prices.

Reduce the risk. We can guard against the market uncertainty and reduce the impact of increased volatility. Keep ample cash reserves. Remain diversified. Implementing hedging strategies can protect against downside risk. This could include options, strategic asset allocation, or diversifying into less correlated assets.

Stay true to you. As I said above, stick to your plan. While it’s crucial to be aware of political events, experienced investors should stay focused on their long-term investment philosophy and avoid making reactive decisions based solely on election outcomes.

Here's an election year version of my "P's to investment success": Prudent Portfolio Planning, NOT Politics, Promotes Positive Performance.

John J. Gardner, CFP®, CPM®

3860 Blackhawk Rd, Ste. 160

Danville, Ca. 94506

888.985.PLAN (7526)

https://blackhawkwealthadvisors.com/

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