By Tim Courtney, Chief Investment Officer
We're now in June, just five months away from the U.S. presidential election, and we are entering a period where the majority of news coverage will revolve around it. It would be refreshing if there were productive and enlightening discussions about policies during this time, since they do matter. But while they affect growth, productivity, and standards of living over longer periods of time, historical data reveals that election years do not reliably predict near-term market behaviors—a trend that’s remained consistent across election cycles.
Looking at market returns during election years and the subsequent periods, in fact, TIAA found that a 60/40 portfolio yielded an average annual return of 8.7% during the 24 presidential election years since 1928, slightly higher than the 8.5% average return in non-election years over the same timeframe.1 This trend holds true regardless of which party holds the presidency or Congress—there's no discernible pattern that elections fundamentally alter market performances.
What does this mean for investment strategies? Essentially, it should be business as usual. We should continue to evaluate asset classes and portfolio weights based on valuations rather than the political calendar. The election itself shouldn’t affect the process.
As mentioned above, though, policies do impact markets, usually over much longer periods of time. As an example, current legislative initiatives to promote electric vehicles and boost U.S. manufacturing, including investments in AI, are reshaping demand in the energy sector.2 Energy use for cryptocurrencies (the SEC has recently approved bitcoin and ether cryptocurrency ETFs), combined with these other changes, will almost certainly increase electricity demand in the U.S.3
As noted in a recent Goldman Sachs report, U.S. power demand growth over the last decade has been close to zero. Demand has been kept flat by new technologies such as the LED light. However EVs, AI, crypto, and new manufacturing are technologies that will meaningfully increase power demand growth to levels not seen since the early 2000s in the dot-com era.4 This happens while some new supply comes on line but other supply (from nuclear) goes offline.5
This situation could create issues for our electrical grid but also investment opportunities across several sectors over the next decade. There also may be changes to our tax code if tax policy reverts back to pre-2017 law in 2026.6 We will be speaking with clients to discuss potential actions to take regarding this change in 2025.
During an election year, we have no discernable pattern for how markets behave. In most election years they behave fairly normally. Policies will play out over longer periods and will present us with risks to be managed and opportunities to be considered. For specific questions or discussion on how this might affect your portfolio, please contact your Exencial advisor.
Sources:
- CNN Business (5/7/24) – It’s a presidential election year. Here’s what that could mean for your 401(k)
- The White House (data as of 5/28/24) – Inflation Reduction Act guidebook
- CNBC.com (5/23/24) – SEC approves rule change to allow creation of ether ETFs
- Goldman Sachs (05/14/24) – AI is poised to drive 160% increase in data center power demand
- U.S. Energy Information Administration (data as of 5/28/24) – Nuclear Explained: U.S. nuclear industry
- The Tax Advisor (12/1/23) – Tax planning for the TCJA’s sunset
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