Economy & Markets
Navigating uncertainty: How to stay calm in election years
Presidential elections can be uniquely unsettling. Candidates campaign with different views of the future. Polling and predictions dominate new cycles. Pundits forecast policy and regulatory changes.
Adding to the noise and the uncertainty of our own election outcomes this year, 40% of the world’s population will head to the polls to vote for national leaders in 2024.
With change on a global scale about to unfold, you may be tempted to pull back from plans you’ve made, or to postpone critical decisions until a future date when you hope to have more clarity.
However, following through on these very human impulses may not be in your best interest.
Behavioral science can help us understand why such feelings surface at times like these—and teach us how to manage them.
Understand the forces at work
Uncertainty makes us feel confused, frustrated or even depressed. These emotions are triggered by our:
Aversion to risk—We tend to prefer certainty over uncertainty, and will sometimes go out of our way to avoid risk—even when it’s not to our advantage.
For example: We see clients holding on to cash instead of putting it to work in the belief that important financial decisions are best postponed until well after the election.
Need for control—We like feeling that we are in charge of our circumstances, and periods of uncertainty intensify our desire for control. This, in turn, often prompts us to take action—to do something, anything—to maintain a sense of control.
For example: Despite knowing that market timing is a risky strategy, clients with strong political views and who closely follow the news often want to make real-time adjustments to their portfolios as election-related events unfold, such as shifts in the near-term outlook for particular industry sectors.
Either/or thinking—Elections tend to make us think in all or nothing terms. We become overly optimistic about the benefits of a win by our preferred candidate—and overly catastrophic about the fate of the country if the opposing candidate wins. At the same time, this either/or thinking can intensify our anxiety and push us to make decisions we otherwise would not consider.
For example: In 2016, many clients pulled out of the market ahead of the national elections—only to return months later, after the results were in. Meanwhile, financial markets rebounded the day after votes were cast.
All of these reactions are normal, and we all feel them.
But it is possible to navigate these feelings, return to a sense of calm—and invest smartly. Adopting these proven strategies can help:
Look to the past for reassurance
Historically, stocks tend to perform well in election years. While there may be short-term volatility around Election Day, the events themselves have minimal influence on financial markets in the medium and long terms. Near-term spikes and valleys tend to smooth out over time. As these charts show:
Election jitters? Markets tend to rally as uncertainty fades
S&P 500 moves around U.S. elections since 1984, Indexed to Election Day
Source: Bloomberg Finance L.P. Analysis as of January 18, 2024. Past performance is no guarantee of future results. It is not possible to invest directly in an index.
S&P 500 and sector performance dispersion by Presidential Administration
1990-2023, calendar year total returns, maximum, minimum and average returns
Source: White House, FactSet, J.P. Morgan Asset Management. Due to data constraints, real estate return data begins in 2002. Data are as of December 31, 2023.
Stock returns don’t tend to differ much in election years
S&P 500 average annual price returns, 1928-2023, %
Source: Bloomberg Finance L.P. Data as of December 31, 2023. Past performance is no guarantee of future results. It is not possible to invest directly in an index.
Focus on what you can control
We recognize that having reliable market data can ease concerns about election outcomes, but only to a certain degree, as charts, figures and numbers provide answers that satisfy the logical part of our brain.
These three strategies can help you manage the strong emotions that uncertainty about the future can trigger:
- Construct a financial fortress—Take concrete steps to create psychological safety for yourself and your loved ones. Start by taking stock of your absolute certainties and revisiting your risk preferences and investment allocations. Involve your J.P. Morgan team in this process:
- Request a portfolio review. The more comfortable you are with your holdings (asset allocation, level of risk, time horizon, duration), the more likely you are to remain invested and avoid making emotion-driven moves.
- Prioritize tax efficiency. Taxes are likely to go up regardless of who wins the election. Carefully investigate the potential for tax savings both in your investments and across your entire balance sheet to maximize the opportunity.
- Keep personal goals front and center—Focusing on personal goals and how to accomplish them is a proven way to regain a sense of control, and to ensure that your needs and desires are taken care of, regardless of market performance:
- Take advantage of Wealth Plan Plus, J.P. Morgan’s proprietary planning tool, to calculate the asset allocation, risk tolerance and time horizons for each of your goals, and to gain a higher level of control than you might otherwise have.
- Establish an emergency/rainy day fund if you don’t already have one.
- Plan for upcoming life events, such as a wedding, family trip or business launch, to ensure their success.
- Lean on people—In times of uncertainty, we seek safety in people. Work closely with your professional advisors, trusted family members or others to maintain both your financial and emotional balance in turbulent times.
We can help
As Richard Madigan, J.P. Morgan Private Bank’s Chief Investment Officer, reminds, “successful investing focuses on policy, not politics.”
Regardless of which candidate wins an election, opportunity is created. We look at the potential that is created through regulatory changes, and capture these opportunities for our clients so that they can capitalize on them. We’ll work closely with you to ensure that your needs and desires are taken care of, regardless of what happens in the market.
Uncertainty is part of everyday life. Some of the most effective antidotes for feeling overwhelmed are to set and prioritize goals, focus on what you can control, and maintain a long-term perspective. Your J.P. Morgan team is ready to help guide you toward the future you envision.
Presidential elections can magnify our concerns—about markets, economies, taxes and more. Behavioral science can teach us how to stay calm during turbulent periods.
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