The Intersection of Politics and Your Portfolio

There’s a common worry that a change in political leadership could make or break the economy. But here’s the truth: The economy is driven more by everyday consumer spending than who’s sitting in the White House. In fact, about 70% of U.S. economic activity comes from what people like you and me spend on groceries, cars, vacations, and more. What affects that spending? Things like inflation, interest rates, job availability, and bank lending standards.

Sure, government policies on taxes and spending matter too, but they’re often not as impactful as we think. Even big concerns like the national debt and budget deficits have kept rising across both Democratic and Republican administrations. Addressing our growing debt is a big deal, but experts agree it likely won’t become an urgent problem for at least another decade.

Here’s a reassuring fact: The U.S. economy has grown through every single four-year presidential term since 1949, no matter the party in power. The pattern of steady growth highlights the resilience of our economy. Over the past 50 years, the economy has expanded under both Republican and Democratic leadership, with very little difference in average growth rates between the two.

In other words, while it’s easy to think a political shift might derail things, history suggests the economy keeps moving forward. It’s influenced by factors much bigger than one administration.

We get it—market ups and downs can feel stressful, especially when headlines focus on politics. But here’s some perspective: Since 1980, the S&P 500 has averaged a 14% drop at some point every year. That kind of volatility is normal and often short-lived. The good news? The stock market has ended up in the positive 81% of the time, with an average annual return of 12%.

The longer-term reality is this: Stocks are driven by corporate profits, not politics. American companies have a knack for innovating and growing, which is why patient investors tend to come out ahead over time. While short-term reactions to election outcomes are common, sticking to a sound investment strategy pays off in the long run.

The Economic Outlook for 2024

Speaking of strategy, let’s talk about what’s happening now. The U.S. economy showed a lot of strength last year, with consumer spending and job growth remaining solid, even as the Federal Reserve raised interest rates. Initially, the markets expected the Fed to start lowering rates in March of this year. But when early 2024 inflation numbers came in hotter than expected, that timeline got pushed to June.

The Federal Reserve is keeping an eye on what’s called the neutral rate—the point where interest rates neither slow down nor speed up the economy. The current neutral rate estimate is around 2.5%, meaning the Fed has some room to cut rates. However, they’re being cautious. If inflation doesn’t come down as expected, the Fed might have to wait longer before reducing rates. They’re keen to avoid the mistake of cutting rates too soon, like in the early 1980s, when inflation flared up again.

So, while there are different scenarios that could play out, from delayed rate cuts to a quicker economic slowdown, the key takeaway is this: The economy has shown resilience, but it’s wise to be prepared for some bumps along the way.

What Should Investors Focus On?

Here’s where we come in. At Allworth Financial, we believe in sticking to tried-and-true investment principles, no matter the political noise. Instead of reacting to short-term headlines, it’s better to focus on your long-term financial goals, diversify your portfolio, and trust your financial plan.

Remember, fear and panic are not good investment strategies. The data supports a calm, measured approach, even in uncertain times. We’ll be here to keep an eye on interest rates, inflation, and market trends, and we’re committed to helping you make informed decisions tailored to your needs.

At the end of the day, the president and Congress can influence policies, but they don’t have the final say on the economy. The bigger factors—like corporate profits, global trade, and consumer confidence—often carry more weight. As this election cycle unfolds, we’ll keep providing insights and updates to help you stay informed and confident in your financial plan.

Thanks for trusting us with your financial journey. As always, if you have questions or concerns, we’re just a phone call away.