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Ready or not, Election Day is right around the corner. Most of the attention is on the candidates themselves, but investors also may find themselves wondering what the outcome may mean for the stock market — and, in turn, their portfolios.
While there is no way to predict the future, history can still offer some helpful guidance and hopefully cool some nerves. Here is a look at what past election years have shown and how investors can navigate the uncertainty in the months ahead.
Do elections really matter for the financial markets?
Presidential elections "can shift the nation's policies regarding foreign relations and domestic economic development," and as such, "can cause significant volatility in the market as investors cope with uncertainty about the country's direction," said Forbes.
That said, "the news-cycle volatility of election years has often had less impact on markets than voters might assume," said Fidelity. Instead, "market moves are more likely to be driven by market and economic fundamentals, such as corporate earnings, interest rates and other economic factors," with effects from what is happening politically more likely to be short-term.
What does past market performance tell us about the upcoming election?
"Of course — as always — there is one caveat: Past performance is no guarantee of future returns," said Forbes. With that in mind, here is what history has shown us in regards to the presidential election's impact on the market in years past:
The markets do not necessarily favor one party over the other. "Although popular myths sometimes suggest that one party or the other is 'better' for market returns, the historical data does not bear out these theories," said Fidelity. Indeed, "the S&P 500 has historically averaged positive returns under nearly every partisan combination."
Down-ballot races are worth paying attention to. While many people are focused on who wins the presidency, down-ballot races for Congress can have a major impact as well, as they "will help determine whether the next two years are spent under divided or unified government, and will likely impact how much of its agenda the next administration is able to accomplish," said Fidelity. Still, those results are not determinative — "it seems that even when Congress is controlled by the opposition party (which makes it more difficult for a president to pursue an agenda), markets tend to react in ways similar to when there is a unified government," said Investopedia.