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Don’t Let Perception Become Your Reality

2024 is a monumental election year. Though, it’s probably not for the reason you’re thinking right now. In 2024, 64 countries around the globe will hold elections representing about 49% of the world’s population, according to an article in TIME. The most of all time. One of those countries holding elections this year is the US and there are many important issues for voters to consider: foreign policy, border security, healthcare, social security and medicare, and much more. Notably, I did not mention one topic- the economy. I am going to make a controversial statement- the economy and markets will be fine over time regardless of the outcome of the 2024 elections. 

JPMorgan conducted a study looking at how the economy and markets performed since World War II. The economy was measured by the rise in real GDP while the market performance was measured by annual returns of the S&P 500. The data was collected and then organized to include how the government was controlled at that time- Republican controlled, Democrat controlled, or divided. The results are fascinating. Republicans had complete control 10% of the time, Democrats 29%, and divided government occurred 61% of the time. Real GDP rose the most under Democrat control at 4.0%, 2.8% for Republicans, and divided government had an increase of 2.7%. The S&P 500 had the highest average annual return under Republican control of 12.9%, 9.3% for Democrats, and 8.3% for divided government. Whether you identify as Republican or Democrat, there is something to appreciate. One observation is that history suggests Democrats have better economic growth, while Republicans have better stock markets. Though the more important observation is, regardless of who was in control the economy grew and markets moved upwards over time. Unfortunately though, it doesn’t always feel to investors like that’s the case. 

Why do we often feel like things are not as good as they are or are worse than they appear? Our perception of the events are influenced by our emotions. JPMorgan studied how an investors’ political leaning influenced their perception of the economy. JPMorgan cited a survey done by the Pew Research Center in which self-identified Republicans and Democrats answered whether they thought national economic conditions were “excellent” or “good”. Unsurprisingly, Democrats rated the economy more favorable under a Democrat President, while Republicans rated conditions more favorably under a Republican President. The more interesting observation here is that the average annual return of the S&P 500 during the Obama and Trump presidencies were 16.3% and 16.0% respectively, yet the percentage of Republicans surveyed who thought the economy was “excellent” or “good” under the Obama presidency never went above 20%. After the 2016 election that number began to increase rapidly, peaking at above 80% in 2019. Similarly, Democrats peaked around the mid 40% range at the end of the Obama term but never increased past that substantially under the Trump presidency, despite having essentially equal market returns. 

We have to be careful as investors to not let our political leanings influence our investment decisions. Our perception of the environment we are in can be incredibly influenced by if we feel like “the right person” is in charge. We have all heard others or felt the desire ourselves to change how we invest based on who is in charge. Yes, there are some tactical opportunities to exploit or avoid with political shifts, but the data and history suggests that regardless of the election outcome, we will be okay. This is not to say that policy does not matter or that our government can’t influence the economy, but that our economic future does not hang in the balance of an election in 2024. Rather, our economic future will continue to depend on American ingenuity and entrepreneurship.