The Election is Over. Now What?
In the days and weeks following the election, there have been many reports framing the outcome as ‘decisive’ or ‘sweeping.’ But the roughly 1% margin of victory in the popular vote reminds us that while the electoral college result was indeed decisive, the country remains split along party lines. That means some readers likely feel excited about the result of the election, while others feel deeply disappointed.
As investors, we should resist feeling any emotional pull in one direction or the other.
Put another way, don’t let the election results alter or derail your long-term goals and the plans you’ve put in place for achieving them.
Elections and the policies they produce matter, but they have not been the primary driver of market returns over the long run. After all, elections happen every four years, and business and economic cycles basically never fit neatly into these four-year boxes.
Case-in-point: since 1950, there have been 18 presidential elections and 10 transitions in the White House between Democrats and Republicans. Over those 74 years, U.S. GDP growth has averaged a 3.2% annual pace, while the S&P 500 has compounded at 9.4% per year(i). Republicans and Democrats have both been bullish for stocks over the long run, despite what one party claims about the other.
There’s a sense in the investor community that “this time is different,” and it’s coming from both directions—some say this time it will be worse, while others claim it will be far better. Our job is to sift through the noise and focus on what the fundamentals tell us.
Historically, stocks move higher 12 months after the election, and President-elect Trump is inheriting an economy on strong footing—as evidenced by the fundamentals detailed below:
That being said, big gains in the market may not be so easy to achieve. When Trump won the 2016 election, the S&P 500 traded at 17 times projected earnings, while the yield on 10-year Treasury bonds was around 2.5%. Eight years later, the S&P 500 is trading at 23 times projected earnings, which is 40% higher than the average since 2000, and the yield on 10-year Treasury bonds is 4.3%. It’s a different setup than 2017.
There’s a lot to weigh in the new year, and as ever we will be here to help you navigate through it. As the actual economic policy of the new administration comes into focus, there will be more information to parse. But from where we sit in this moment, we do not see a reason to make major adjustments. The fundamentals below still apply:
Economic Resilience: The economy has so far avoided a recession, despite tightening monetary conditions that included aggressive interest rate hikes in 2023.
Favorable Financial Conditions: Easing financial conditions—and expectations for further rate cuts—have bolstered optimism in the economy. In September, global central banks cut interest rates 21 times, and excess liquidity in the G10 has only been higher twice in the last 50 years(ii).
Consumer Strength: American households remain healthy in aggregate, though there are disparities between subprime and prime consumers.
Better-than-Expected, and Broader, Earnings Growth: In the third quarter (with 93% of S&P 500 companies reporting results), 75% of companies have beaten earnings expectations with the potential for 7% year-over-year earnings growth. Broader growth—outside of Big Tech earnings—is expected in Q4(iii).
In Conclusion
Markets know that neither party is perfect, and other factors outside of politics—like innovation, interest rates, valuations, earnings, inflation, and more—are what really matter to long-term market returns, in our view.
And while the election may make some investors feel like they need to do something in response, economic fundamentals make a compelling counterargument. Investors should keep focus on the factors they can control, like budgeting, saving, investing for the long-term, and sticking to your plan. Put another way, if your goals and/or financial situation have not changed in the past month, your asset allocation and portfolio positioning should almost certainly not change, either.
(i) Source: J.P. Morgan, “U.S. Election Recap,” November 6, 2024.J.P. Morgan, “U.S. Election Recap,” November 6, 2024.
(ii) Source: Silverlight Asset Management, “5 Things We Learned This Week,” October 5, 2024.
(iii) Source: Factset, “Earnings Insight,” November 15, 2024.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested in directly.
Stock investing includes risks, including fluctuating prices and loss of principal.
Investing involves risk including loss of principal. No strategy assures success or protects against loss.
The S&P 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
