2024 has been a rollercoaster for financial markets, and many of you may have noticed increased volatility in your 401(k) accounts. Market ups and downs are expected, but the movements we’ve seen so far this year may have left some wondering what’s driving these swings and how it affects long-term retirement planning. Whether you’re a seasoned investor or new to understanding your 401(k), let’s break down what’s going on and what you should consider as we move closer to the upcoming elections.

Market Performance in 2024 (as of 9/12/2024)

2024 has been marked by sharp market fluctuations, with economic uncertainty at the forefront. After a strong start to the year, the second and third quarters have seen more volatile trading, with stocks swinging due to a variety of factors:

  • Interest Rates: The Federal Reserve’s ongoing efforts to curb inflation have kept interest rates elevated, making borrowing more expensive and causing ripples across stock and bond markets.
  • Corporate Earnings: While some companies have posted solid earnings, many are seeing profit margins shrink as higher costs for labor, raw materials, and borrowing begin to take a toll. This has created more cautious market sentiment.
  • Global Factors: Trade tensions, geopolitical issues, and supply chain disruptions have further fueled market jitters.

Despite these challenges, the long-term market trend remains upward, though daily and monthly fluctuations can make it feel less predictable.

Election Impact on the Market

With the 2024 U.S. elections just around the corner, markets are increasingly sensitive to political developments. Historically, election years bring heightened uncertainty, and this year is no exception. Investors are watching closely, trying to anticipate how the outcome might affect policies related to taxation, regulation, government spending, and trade.

How have markets behaved in past election years? Historically, the market tends to become more volatile in the months leading up to an election. Uncertainty over potential changes in policy can lead to hesitation in the stock market. However, once the election results are known, markets typically stabilize, regardless of the outcome. Research shows that election years generally do not disrupt long-term market growth. Over the past century, the average return for the stock market in election years has been positive.

Volatility Trends:

  • Election Year Volatility: The VIX (Volatility Index) typically spikes 20-30% during the months leading up to the election, reflecting heightened uncertainty.
  • Post-Election Stabilization: Volatility tends to decrease significantly in the months following the election, especially once the new administration’s policies are clearer.

Below are some market statistics including the full S&P 500 performance for an election year, the six months leading into an election, the three months after a presidential election and differences in performance between incumbent wins and new candidates that can visually illustrate market performance during U.S. presidential election years.

Key Trends:

  • Market Returns: Positive returns in 4 out of the last 5 election years, with the 2008 financial crisis being the notable exception.
  • Pre-Election Volatility: VIX tends to rise significantly in the months leading up to the election.
  • Post-Election Rebounds: In most cases, the market tends to stabilize and recover after the election results are confirmed.

And finally, for those interested here’s a look at the S&P 500’s overall 4-year market performance during the terms of the last 10 U.S. presidents. The percentages reflect the total return of the S&P 500 from the inauguration to the end of each president’s term (or their first term for those who served multiple terms):

Key Takeaways:

  • Strong Growth Periods: The Clinton and Obama presidencies saw particularly strong market performance, with gains driven by economic growth, productivity, and tech innovations.
  • Challenges: Both Bush presidencies faced significant market declines due to recessions and crises (dot-com bust, 9/11, and the financial crisis).
  • Recent Volatility: Biden’s presidency has been marked by more moderate gains due to economic and geopolitical challenges, while Trump experienced strong returns despite the pandemic.

What Does This Mean for Your 401(k)?

For long-term retirement investors, the ups and downs of election cycles and market volatility are a normal part of investing. If you’re decades away from retirement, the best course of action is often to stay the course. Markets have historically recovered from short-term volatility and provided solid growth over the long term.

However, if you’re closer to retirement, it’s natural to feel more cautious. Depending on your risk tolerance and time horizon, you may want to review your investment allocations. This doesn’t mean reacting to every market dip or political development, but rather ensuring that your portfolio aligns with your financial goals and time frame.

Key Takeaways

  • Market volatility is normal—especially in an election year. While it may cause short-term uncertainty, history shows that markets tend to recover and grow over time.
  • Long-term investors should stay focused on their long-term goals. Trying to “time the market” by pulling out when things get shaky could lead to missed opportunities when the market rebounds.
  • Those closer to retirement may want to review their investment strategy to ensure it’s appropriate for their time horizon. Speak to a financial advisor if you’re uncertain about your current allocations.

What Should You Do Next?

  • Stick with your plan: If you have many years until retirement, it’s generally better to ride out the market’s ups and downs rather than make drastic changes based on short-term market movements.
  • Diversify: Make sure your investments are spread across different asset classes (stocks, bonds, etc.) to minimize risk.
  • Check your risk tolerance: If the recent volatility is making you uneasy, it might be a sign that your investment mix is too risky for your comfort level. Adjusting to a more conservative allocation could provide peace of mind without sacrificing long-term growth.

For more detailed information on market volatility, retirement strategies, and election-year investing, consider reading resources like Morningstar, Investopedia, or consulting with one of Arcwood Financial LLC’s Financial Advisor Consultants. .

Meeting Requests

If you would like advice on either of these subjects, please email Arcwood at: retirement@arcwood.com to set up a free one-on-one retirement review meeting.

This material is for educational purposes only and should not be construed as financial, legal, or tax advice. It is not intended to serve as a solicitation or recommendation for the purchase or sale of any securities or investments. The S&P 500 Index is referenced in this article for illustrative purposes and represents a widely recognized measure of U.S. stock market performance. It is not available for direct investment, as the index itself is not a security. Past performance of the S&P 500 or any other index does not guarantee future results. Please consult with a qualified financial professional regarding your personal financial situation before making any investment decisions.

Arcwood Financial, LLC., Arcwood Benefits Consulting, Inc., and Arcwood HR, LLC. (dba Arcwood) are independent companies. Arcwood does not offer legal, tax or compliance advice. Brandon Oliver is an Investment Advisor Representative offering Advisory Services through Arcwood Financial LLC. a registered Investment Advisory Firm.