I'd Take Those Odds

My wife and I recently took our kids with us to early voting. We wanted them to see firsthand that having a voice in our government is both a privilege and a responsibility. Regardless of who wins an election, we believe it is important to participate, understand the issues, and recognize that our choices help shape the future.

Interestingly, elections also provide a valuable lesson for investors.

Over the past several decades, the stock market has demonstrated a remarkable pattern following midterm elections: historically, U.S. stocks have delivered positive returns over the subsequent 12 months 100% of the time. The accompanying chart from Russell Investments shows positive 12-month forward returns following every midterm election in its dataset dating back to 1934, with average returns of 11.1%.

That is an encouraging statistic, especially when we consider how much uncertainty surrounds election seasons. Campaigns are filled with predictions about taxes, regulation, government spending, trade policy, and the direction of the economy. Investors can easily become caught up in the headlines and wonder whether they should make changes to their portfolios based on the potential outcome.

History offers a useful reminder: volatility, uncertainty, and you’re candidate not getting elected are not necessarily reasons to abandon a long-term investment strategy.

The beauty of capitalism

One of the things I appreciate most about our economic system is the ability of businesses to adapt. Companies do not simply stop operating because a particular candidate wins or loses. They continue to innovate, manage costs, develop products, serve customers, and look for opportunities to grow.

Some industries may benefit from certain policies, while others may face new challenges. Individual companies will succeed or struggle for many reasons. But the strongest businesses often find ways to adjust, compete, and generate profits in a changing environment.

That adaptability is a powerful part of capitalism. Over time, the stock market reflects the collective performance and future prospects of businesses across the economy, not simply the results of a single election.

Of course, this does not mean stocks move higher every day, or that every company succeeds. Markets can experience meaningful declines, and economic conditions, interest rates, inflation, geopolitical events, and corporate earnings all influence investment returns. The historical pattern following midterms is encouraging, but it is not a guarantee of what will happen next.

Embrace the uncertainty. Focus on the long term.

It can be tempting to react emotionally when markets become volatile, particularly when the political headlines feel consequential. Yet trying to predict election outcomes and trade investments accordingly introduces another challenge: getting both the decision and the timing right.

Instead, I believe investors are better served by focusing on what they can control. That means maintaining an appropriate asset allocation, diversifying investments, understanding their financial goals, and staying disciplined through periods of uncertainty.

Just as we wanted our children to understand the importance of having a voice in our government, I want investors to understand the importance of having a plan for their financial future.

We should absolutely pay attention to elections and the policies that follow. They matter. But we should be careful not to confuse political uncertainty with the long-term prospects of the businesses that drive our economy.

The lesson is not that elections do not matter. It is that successful investing requires a longer perspective than the next election cycle.

Participate in the process. Respect the uncertainty. And remember that, over the long haul, adaptable businesses and a disciplined investment approach can be powerful forces in building wealth.

That is a lesson worth remembering, regardless if the candidate, or candidates of our choice wins in November.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual or firm.

All performance referenced is historical and there is no guarantee of future results. All indices are unmanaged and may not be invested directly. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.