Chart of the week: Market returns under Republicans or Democrats?
This week's chart of the week looks at the minimal impact on markets that party has, and instead focuses on another measure that is a bigger tell of returns.
Reflecting on the US election, it is important to look at the data and see that valuation matters far more than the winning party when it comes to stock returns over a presidential term.
This week's chart of the week looks at data from Robert Shiller and Morningstar Investment Management. It highlights how long-term valuations often tell the real story. Regardless of the outcome of the election and the victory of whichever party, investors should focus on valuations to help provider a clearer perspective.
Source: Robert Shiller (http://spr.ly/6046S5GPw) and Morningstar Investment Management. Data as of November 2, 2024.
However, we have seen a change in the way that elections have influenced markets. The impacts have been deeper and longer lasting than in the past. This is partly due to elections resulting in large policy shifts, especially in the realm of geopolitics. There are flow on effects for trade and multinationals which most, if not all of us, have exposure to.
In markets, this is called ‘event risk’
Event risk is the risk an individual share or the overall share market suffering losses due to unforeseen circumstances. Event risk can impact a single company. For example, technological failures that impacted Optus. They can impact a sector, such as banning of marketing for cigarettes. They can also impact whole markets, like the breakout of an international conflict.
Morningstar’s 2024 Outlook report looks at the impact of major global events on equity markets over the short term.
This is why it is particularly important for those in retirement to structure their portfolios, so they are drawing down on liquid assets. We’ve written extensively on bucket portfolios to increase the longevity of retirement portfolios and help protect it from sequencing risk, volatility and longevity risk.
Patience and focusing on investing fundamentals
Mark recently wrote on his thoughts on the US election here. He spoke about a recent trip to the US, and how there was a common theme. It was a lack of humility, patience and consistency. It was everywhere. From the electorate to the political commentators to the candidates.
Instead of focusing on reacting to election results and outcomes, his sage advice is to focus on your actions as an investor, and ensuring that you are focused on what you are trying to achieve in your portfolio instead of tactically allocating for success.
Elections and significant events can cause momentary volatility. Having a plan in place and understanding the investments that are aligned with your investments can mean that you are able to take advantage of this volatility, focusing on investing at attractive valuations.
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More Charts:
- Chart of the week: Small caps lagging
- Chart of the week: Tax cuts fueling revival in discretionary spending
- Chart of the week: What's in a name? Balanced funds appear anything but balanced
- Chart of the week: Blue chips look expensive, more opportunities in smaller caps
- Chart of the week: The state of mining's biggest players
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