Presidential Elections and the Stock Market: Reduce Risk Now Despite Historical Gains
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Presidential election years historically see strong stock market returns, averaging over 10% for the S&P 500 since 1833. However, notable exceptions like 2000 and 2008 saw major market declines.
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Markets tend to correct in September and October of election years regardless of final annual returns. This year already saw a substantial spring and summer rally.
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Policy changes from a new administration could negatively impact markets in the short-term if perceived as unfriendly to business interests. Markets seem to prefer political gridlock.
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This year's highly polarized electorate and divided government suggest the likelihood of major policy changes in the near term is low even with a change in administration.
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Investors should reduce risk, hedge, and rebalance now to prepare for unexpected electoral outcomes or market declines. Historical averages don't preclude downturns.