Every four years we are tasked with choosing who will be our President and most powerful individual in the world. That's a very heady responsibility. Each time we are told that it will be the most consequential election of our lifetime. Well, indeed, each time it is!

It's right about this time in the cycle that many clients ask how their portfolios might fare depending on the election outcome. First, let me give you the same answer I have given each time..."No one really knows"! But we can look at historical trends to see if there's a hint.

Historical trends during election years can be fascinating to explore, especially when it comes to the stock market. Let’s dive into some insights:

Election Years and Market Theories:

• According to a 2021 Dimensional Funds report, the stock market has generally been favorable in 20 out of the 24 election years from 1928 to 2020. Only four times did it show negative returns during those years¹.
• However, here’s where it gets interesting: The Presidential Election Cycle Theory suggests that specific years within a president’s term tend to exhibit distinct market behavior:
• Year Three: Typically the strongest year for the market.
• Year Four: Follows closely in terms of positive returns.
• Year Two: Comes next.
• Year One: Often the weakest year for market performance.
• This theory was initially proposed by Yale Hirsch, the creator of the Stock Trader’s Almanac, and further developed by Pepperdine professor Marshall Nickles¹.

Recent Challenges to the Theory:

• Recent history has thrown some curveballs. During the presidencies of Barack Obama and Donald Trump, the stock market didn’t always follow the expected patterns:
• For Obama, the first two years were more profitable than the third.
• For Trump, the first year outperformed the second, followed by a significant surge in his third year, and then the wild ride of 2020.
• So, investors trying to time the markets based solely on election-year trends didn’t necessarily match past data¹.

Unpredictable Factors:

• Recessions and significant economic shocks can disrupt even the most reliable patterns. For instance, the financial crisis of 2008 and the pandemic-induced volatility of 2020 defied typical election-year trends.
• It’s essential to recognize that while historical trends provide insights, they’re not foolproof guides for future investment decisions¹.

Stock Market Trends in Election Years:

• Another interesting tidbit: stocks tend to rise from March to August and then again from November to year-end during election years².

In summary, while historical data can offer valuable context, remember that the market is influenced by a multitude of factors—some predictable, others not. So, whether you’re investing or just observing, keep an eye on the bigger picture and stay adaptable!

Lastly, as you hear me say in every newsletter, keep in touch. If we haven't met recently, if you've had a change in your circumstances, or if you'd just like to share a cup of coffee, give me a call so we can find a good time for you.

2024 Takes a Turn

Charles Boettcher Southwest Divisional Managing Director

For much of 2024, it has been relatively quiet – that changed the past few weeks. We have been cautioning investors that volatility was likely to increase throughout the remainder of the year, and sure enough, volatility arrived and somewhat dramatically.

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Save the Date - August 29th

Who do you listen to, Tom?

A wise man once told me to surround myself with people smarter than myself. It was great advice, and as your Certified Financial Planner, I am proud to tell you City National Rochdale is my "go-to" resource for portfolio design. Below is the opportunity to listen in to their August Market Update. I encourage you to join in....I promise you'll like it!

Our August Market Update Webinar on Thursday, August 29th at 1pm ET/10am PT will feature CNR top leaders as they share their thoughts on the economy and markets. Register today!



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