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  • Writer's pictureHolzberg Wealth Management

How to Invest as the Election Approaches.

HWM Market Recap - July 2024

Holzberg Wealth Management Newsletter
Executive Market Summary

Some clients have begun asking what the outcome of the election could mean for the economy and whether they should change their investments based on who wins the presidency. It is completely natural for investors to look for a connection between who wins in November and which direction their portfolio will go. So, how do you invest in an election year?

The short answer is that the election is only one of many different variables affecting the market, and history shows that elections alone have seldom had a lasting impact on stock prices.

The graph below, which looks at nearly a century of data, illustrates that stocks have trended upward over the long term across both Democratic and Republican administrations.

The Market and US Presidential Elections

Source: S&P data © 2024 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. Chart designed by Dimensional Fund Advisors LP.

This is not to say that each of the presidents during the time represented above did not impact the economy and markets in their own ways. Nor are we saying that there have not been difficult times economically throughout each president's term – every president since Herbert Hoover has experienced down markets. Historians will continue to debate about how these presidents made their impact and to what degree. Instead, when making investment decisions, there is no evidence compelling enough to show what choices investors should make based on the outcome of elections.

The chart above reminds us that, as investors, we put our money and faith in companies that focus on serving their customers and growing their businesses, regardless of who is in the White House. Moreover, the stock market is not a reflection of who is president but of American ingenuity – those companies creating products and services to solve problems, improving efficiency, and looking at old ideas in new ways. Long term, politics has far less control over the stock market than most people would like to believe.

"In the short run, the market is a voting machine but in the long run, it is a weighing machine."

-Benjamin Graham

Author of The Intelligent Investor

The "father of value investing"

The markets are the combination of millions of individuals placing billions of dollars in trades each day, which leads to pricing that incorporates the collective expectations of those investors. U.S. presidents may be one of many factors impacting market returns, but so do the actions of foreign leaders, corporate activity, consumer demand, interest rates, inflation, health crises, natural disasters, and technological advances, to name a few. Additionally, policy outcomes are often delayed and may come with unintended consequences. Over the course of economic history, American innovation is what succeeds, and stocks have rewarded disciplined investors through both Democratic and Republican presidencies.

Furthermore, as you can see in the chart below, data for the stock market going back to 1929 shows that returns during a U.S. election year compared to returns for the year after an election show little statistical significance for which political party is in office.

Returns During and After US Election Years

Source: S&P data © 2024 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. Chart designed by Dimensional Fund Advisors LP.

But how about congressional elections? Is it a good idea for investors to change their investments according to which party wins a majority on Capitol Hill? Similarly, the data shows that capturing the long-term returns of the capital markets does not depend on which political party controls Congress. In other words, stocks have historically trended upward under Democrat-led, Republican-led, and mixed Congresses – as you can see in the graph below.

Hypothetical Growth of $1 Invested in the S&P 500 Index and Party Control of Congress

Source: S&P data © 2024 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. Chart designed by Dimensional Fund Advisors LP.

Basing investment decisions on an election outcome or how it might unfold is unlikely to result in reliable excess returns. In fact, it may even lead to costly mistakes.

Every four years, a flurry of predictions emerge from analysts, investors, economists, pundits, and political parties, all attempting to forecast the market’s trajectory based on the election outcome. Some may even claim that certain economic outcomes are a foregone conclusion should one candidate or the other control the White House.

In times of uncertainty, investors try to simplify the vastly complex factors that influence stock prices so that they can point and say, ‘This is the single thing that will drive the future of the stock market.’ The truth is that there are hundreds, if not thousands, of things that affect stock prices. In the long run, the stock market reflects investor returns, which include earnings and earnings growth, dividends and dividend growth, and share buybacks.

It is very difficult to draw a definitive conclusion or some connection between one person (or party) being in office, resulting in a particular economic outcome. Accordingly, we caution investors against making sweeping changes to their investment plan in an attempt to profit or avoid losses from changing political circumstances.

This is why it is important to rely on a consistent approach to asset allocation, broadly diversify investments, make a long-term plan, and stick to it. Focus on the things you can control and take the right amount of risk so you can make it through the tough times and capture the rewards of the good ones. In doing this, we strive to deeply understand clients’ goals and their level of risk tolerance to offer them the best chance of financial success.

Markets Overview

​Monthly Changes in Indices

  • S&P 500: +3.47%

  • DJIA: +0.87%

  • Nasdaq Composite: +5.96%

​Year-to-Date Changes in Indices

  • S&P 500: +14.48%

  • DJIA: +4.70%

  • Nasdaq Composite: +18.13%

​Monthly Performance By Sector

  1. Technology +4.90%

  2. Real Estate +4.51%

  3. Consumer Discretionary +4.36%

  4. Communication Services +3.35%

  5. Health Care +2.58%

  6. Consumer Staples +0.83%

  7. Financials +0.29%

  8. Energy -0.49%

  9. Industrials -0.49%

  10. Materials -2.50%

  11. Utilities -3.80%

​Year-to-Date Sector Performance

  1. Communication Services +18.51%

  2. Technology +17.96%

  3. Energy +10.51%

  4. Financials +10.10%

  5. Utilities +9.33%

  6. Consumer Staples +7.92%

  7. Health Care +7.74%

  8. Industrials +7.71%

  9. Materials +4.10%

  10. Consumer Discretionary +2.40%

  11. Real Estate -2.49%

​News Influencing the Economy
  • For its seventh straight meeting, the Federal Reserve held interest rates steady at a 23-year high. The Fed has revised its projections for rate cuts this year to only one – no word on when it might occur.

  • The latest Consumer Price Index (CPI) remained unchanged month-over-month in May with no monthly increase. On an annualized basis, the index increased by 3.3%. Core CPI, which excludes volatile food and energy prices, rose 0.2% in May on a monthly basis and increased 3.4% for the last twelve months.

  • The Bureau of Labor Statistics’s Personal Consumption Expenditures (PCE) Price Index was flat in May month-over-month. On a yearly basis, the index decreased to 2.6%. Core PCE, which excludes food and energy and is the Fed’s preferred measure of inflation, was up 0.1% in May since April, its slowest increase in over three years, and was up 2.6% over the last year.

  • The Producer Price Index (PPI), which tracks prices from businesses to businesses rather than businesses to consumers (like for the CPI), fell by 0.2% in May on a monthly basis. On an annualized basis, the index sits at a 2.2% increase.

  • According to the National Association of Realtors (NAR), the median price for an existing home in the U.S. rose to $419,300, a 5.8% jump from May 2023. This not only marks the eleventh straight month of yearly increases but is also the highest price ever recorded since the NAR started keeping track in 1999. Moreover, existing home sales were down by 0.7% in May and down 2.8% from a year ago. Lastly, the inventory of unsold existing homes grew 6.7% since April. Lastly, according to Freddie Mac (The Federal Home Loan Mortgage Corporation), the average rate for a 30-year fixed mortgage as of July 3, 2024 is 6.95%.

  • The Bureau of Labor Statistics’ Job Openings and Labor Turnover Survey (JOLTS) showed that job openings, number of hires, total separations, quits, and layoffs changed little from the previous month. According to the Employment Situation Summary, the U.S. added 206,000 jobs in June, which was lower than last month but slightly better than expected. The U.S. Unemployment Rate changed little since May at 4.1%.

  • The University of Michigan’s Index of Consumer Sentiment showed a 0.9% decrease from May; however, sentiment remains 36% above the June 2022 low. Year-ahead inflation expectations fell to 3% in June. Long-run inflation expectations were at 3% for the third consecutive month.

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About the Author

Holzberg Wealth Management is a family-owned and operated financial planning and investment management firm based in Marin County, CA. As your financial advisors, we serve you as a fiduciary and are fee-only, so we never receive commissions of any kind. We help individuals and families like you in the greater San Francisco Bay Area and virtually nationwide with the financial decision-making process to organize, grow, and protect your assets.

** This writing is for informational purposes only. The author and Holzberg Wealth Management do not guarantee or otherwise promise any results that may be obtained from using this report. No reader should make any investment decision without first consulting their financial advisor and conducting their own research and due diligence. These commentaries, analyses, opinions, and recommendations represent the personal and subjective views of the author and do not constitute a recommendation, offer, or solicitation to make any securities transaction. The information provided in this report is obtained from sources that the author believes to be reliable. External links to third parties are being provided for informational purposes only. Holzberg Wealth Management is not affiliated with the third-party websites linked to, unless otherwise explicitly stated, and does not constitute an endorsement or approval by Holzberg Wealth Management of any of the third party’s products, services, or opinions. Past performance is not a guarantee of future results. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. Any charts and graphs provided are hypothetical and for illustrative purposes only, are not indicative of any investment, and assume reinvestment of income and no transaction costs or taxes.


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