With Election Day coming up in just over a month, people are beginning to wonder if the outcome of the election will affect the already volatile stock market. Financial advisor, Jake DeKinder says yes, it will have an impact – but so will hundreds of other things.
DeKinder and Mark Gochnour, both of Dimensional Fund Advisors, spoke about the potential impact of the mid-term elections in a webinar on Friday made available locally to clients of Richard Young Associates of Augusta.
“Is it going to have an impact? You betcha!” DeKinder said but added that it is almost impossible to tell how much or in which direction.
DeKinder and Gochnour looked at some historic data over the past 35 years on how the market reacted to an all-Democrat, all-Republican, and mixed-party Congress. With a few exceptions, the market performed positively regardless of which party controlled Congress. The same held true regardless of the party in the White House.
They also showed a chart of how investments would have performed if an investor followed only one party. An investor who invested in the stock market only when Republicans were in power and pulled out when they weren’t would have done slightly better than one who did the same when Democrats controlled Congress. But the investor who stayed in the market regardless of the party in power would have significantly outperformed them both.
“Regardless of my political views, I want to capture some of that,” DeKinder said. “What I’m concerned about as a voter may be different than what I’m concerned about as an investor.”
He said that the markets change any time there is new information and elections are just a small part of that information. Regardless of the outcome, DeKinder said, companies will continue making products and consumers will continue spending.
“It’s not going to come to a grinding halt,” he said.
While we can celebrate the right to express our opinions through our votes, Gochnour advised, “Don’t try to connect the elections with your financial plan.”
A look at the historical data does show the reason for optimism in 2023 – since 1926, the years following a mid-term election have shown an average investment return of 18.5 percent, no matter which party had carried the election.
