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CAPITAL IDEAS: Will the next president ruin the economy?

It is that time of year when investors start thinking about selling stocks as they contemplate the end of the world brought on by whoever will occupy the White House for the next four years.

For many investors, the date November 5, 2024 is terrifying. That is when Americans will cast their votes for the next U.S. president.

Super Tuesday (when 16 states and one U.S. territory voted in their presidential primaries) was on March 5, 2024. The Republican and Democratic National Conventions are slated for July and August, respectively.

It is that time of year when investors start thinking about selling stocks as they contemplate the end of the world brought on by whoever will occupy the White House for the next four years. Here’s the thing: Democrats freak out because they are afraid a Republican will win, and Republicans batten down the hatches in fear of a Democratic term.

The natural question may be “Who is right and who is wrong?” However, that question is framed in a manner that too closely matches the divisiveness of too many of our beloved American brothers and sisters. Instead, let’s frame the question in a manner that helps us form a more perfect union. Together, we can contemplate the question posed twice in a podcast by “Freakonomics” author Stephen Dubner: “Does the president matter as much as you think?

Spoiler alert: no.

Still, I don’t expect the average American to believe that.

Dubner cites:

We humans aren’t always so good at understanding cause and effect … the relationship between X and Y isn’t always as it seems … Emotionally, we tend to be drawn to clean, simple explanations of cause and effect, even if the reality is more nuanced. This may be a form of mythical reductionism. We love our heroes and our villains. So, if you happen to hate a particular president, and I ask you, ‘How much does a President matter,’ you’ll probably say the president matters very much because it’s tempting to blame every bad thing you see on this person who seemingly has infinite power.

And what if you happen to love a particular president? You may well give the same answer, ‘They matter very much’ you say because you’ll attribute all good things, all signs of progress to your president — even if he or she had demonstrably zero to do with the given piece of progress.

Again, I don’t expect the average person to believe that a president doesn’t matter much. And, yes, there can be some debate about what “matter” means. Nonetheless, I believe it (perhaps I am not normal). Therefore, I expect to make minimal—if any—investment reallocations due to potential policy changes.

I encourage you to consider the minimal impact on the economy by an election before liquidating your portfolio. If you remain unconvinced and feel the need to raise cash in your portfolio, consider the following:

  • Sell just enough to put you at ease for now (see the returns following an election year below);
  • Take tax losses in non-tax-deferred accounts;
  • If there are no tax losses, place trades in your tax-deferred accounts;
  • If taxes don’t come into play, talk to your money manager to see if you should reduce every allocation equally or target specific asset classes (i.e., sell foreign stocks first and domestic stocks last, or sell more small caps than large caps).

My intention is not to shame any investor out of raising cash if they are nervous. An essential strategy in investing—and life—is to know thyself. If raising just enough cash now prevents you from selling out everything at the bottom later, then that is a win. As investors, we should be aware of our emotions but not necessarily ignore them.

How to invest in an election year

In a previous column, I cited that the stock market often struggles in the first five months of an election year. That, so far, has yet to be the case in 2024. After those past bouts of weakness, stocks have performed well. Despite voter fears, historically, the S&P 500 has increased 11.3 percent in the 12 months following May 31 of an election year. The average gain has been 11.28 percent in the calendar year an election has occurred. For the calendar year following a presidential election, the average return has been 6.7 percent.

Could it be different this time? Sure. Things that have never happened happen all the time. It would not be so outlandish for something that occurs frequently—stock market declines—to happen this year. Like in any presidential election year, it is possible that politically minded investors could sell stocks and push the market down. That negative momentum could trigger weaker hands to sell their positions, causing a negative feedback loop of more selling and significant losses. But like in other election-motivated pullbacks, the decline would be more deeply rooted in fear than fundamentals.

Is the stock market rally too narrow to continue?

Politics aside, the technicals of the stock market are improving. Some bearish pundits have incorrectly called for a crash due to a concentration of gains from the so-called Magnificent Seven (the seven stocks in the S&P 500 with the most significant market capitalization). Instead, according to Yahoo! Finance, participation is broadening; 126 stocks (26 percent) hit at least one all-time high in 2024.

Chart courtesy of Yahoo! Finance.

An improving market needs more than strong stocks; it needs fewer weak stocks. Lowry Market Trend Analysis notes significant improvement in the number of stocks trading 20 percent or more below their 52-week highs. That number (26.9 percent) is still relatively high but has been trending lower (which is a good sign) since its September 30, 2022, high (77 percent).

A stock market correction cannot be ruled out; it is common in the first five months of a presidential election year and common in general. However, the odds are low that the cause of a pullback would be due to market leadership being too narrow or because a president actually matters.


Allen Harris is the owner of Berkshire Money Management in Dalton, Mass., managing more than $700 million of investments. Unless specifically identified as original research or data gathering, some or all of the data cited is attributable to third-party sources. Unless stated otherwise, any mention of specific securities or investments is for illustrative purposes only. Advisor’s clients may or may not hold the securities discussed in their portfolios. Advisor makes no representations that any of the securities discussed have been or will be profitable. Full disclosures here. Direct inquiries to Allen at AHarris@BerkshireMM.com.

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