If your mailbox looks anything like mine these days, it’s overflowing with campaign fliers, largely thanks to the upcoming “jungle primary” election and the 50 candidates vying for a chance at capturing the Governor’s seat at the November mid-terms.
It’s overwhelming.
But while there is certainly much to think about before casting your ballot, one thing LCM clients do not need to worry about is how to navigate the investment landscape during election season. Why? Because market volatility surrounding elections is not unusual. History has consistently shown that disciplined, long-term investors are often rewarded for staying focused on fundamentals rather than reacting emotionally to political headlines.
It’s true that mid-term election years can tend to bring higher levels of market volatility. Investors naturally begin wondering how changes in Congress, taxation, regulation, or fiscal policy may affect the markets and the economy. As that uncertainty increases, markets often become more reactive in the months leading up to election day.
Though today’s unique political climate can make uncertainty feel particularly dramatic, a look at how the markets have behaved in the past can offer some much-needed perspective. Historically, the first half of a mid-term election year has often produced more muted returns compared to non-election years as investors wait for greater clarity about the political landscape. This pattern has repeated itself through many different election cycles and economic environments over the decades.
Importantly, this does not mean investors should fear election years. Quite the opposite. Periods like these are simply part of the process of long-term investing. Over the past decades, the markets have navigated contentious elections, changing administrations, periods of inflation, deep recessions, global conflicts, technological revolutions, and many other unexpected and unwanted surprises. Yet, through all of that uncertainty, disciplined investors who remained focused on long-term fundamentals have historically been rewarded for their patience.
But there is another side to that historical pattern that is equally important to remember.
Once the election is over and the balance of power becomes more clear, markets have historically responded positively—even when investors do not agree with every policy outcome. It’s a fact that tells us that markets generally prefer clarity over speculation. The result: once the ballots are cast, the drama (at least from a market perspective) typically comes to a fast end. In fact, the year following mid-term elections has often been one of the stronger periods within the presidential cycle for equities. And market history shows a remarkably consistent pattern of positive returns in the 12 months following mid-term elections across many different political environments.
A few important themes tend to emerge during mid-term election cycles:
Markets often experience greater volatility in the months leading up to the election.
Investor sentiment tends to become increasingly emotional as headlines intensify.
Once election uncertainty vanishes, markets have historically stabilized and often moved higher.
Long-term market performance has generally been driven more by economic fundamentals than by which political party controls Congress.
Over time, markets have advanced under Democratic administrations, Republican administrations, and periods of divided government. While certain sectors may react differently to policy changes, broader market performance has historically been driven far more by economic growth, corporate earnings, innovation, and productivity than by politics alone. At the moment, every one of those non-political drivers points to the potential for continued growth.
At LCM, our focus has always been on helping clients build thoughtful, resilient strategies designed to weather many different market environments over time. That means staying disciplined when headlines become emotional, remaining focused on each client’s long-term goals, and recognizing that volatility during election cycles is simply part of investing. It comes with the territory.
That philosophy becomes especially important during election years—mid-terms included—when politics can easily distract investors from what matters most. In our experience, some of the most successful long-term investors are not the ones who attempt to predict every political outcome correctly, but rather those who remain patient, diversified, and committed to a sound strategy even when uncertainty temporarily increases.
Importantly, we also recognize that our affluent clients often face more complex financial considerations during election cycles. Potential changes involving taxation, estate planning, charitable giving strategies, or business succession planning can (and should) all become part of the conversation. That’s why periods like these often reinforce the value of coordinated planning across every aspect of a family’s financial life—not simply investment management in isolation.
While the impact of election turbulence can certainly feel unsettling at the moment, history continues to remind us that markets move through political cycles just as they move through economic cycles. As an LCM client, know that you can take a deep breath and look to the future with confidence knowing that your investment strategy is designed to work toward your goals, regardless of whatever cycle we’re in at the moment. And if you have any questions at all, we are always here to help.
