Prior to the election, several clients were worried about about potential market movements after the 2024 U.S. election. Depending on political perspective, it varied what circumstance they were worried about. Several clients worried about what the markets would do if Harris won. Several others worried about what the markets would do if Trump won. We had one client even who even insisted on liquidating to cash over fears that Trump would win but the forces arrayed against him would not allow him to take office.

Now, the election is over, and I am happy to report that the markets have continued their typical upward trending volatility as they have done after each election.

As I mention in the 2017 article “Are Democrats Or Republicans Better For The Stock Market?,” statistics can be forcibly made to say that either party is better simply by including or omitting the Calvin Coolidge administration (1923-1929). The truth is that partisanship ends up in a statistical tie. If you were only invested in the markets during one party’s rule, you would greatly impoverish your investments, as the 2018 article “Study Shows Your Election Reactions May Impoverish Your Investment Gains” demonstrates. The most foolish proponents of the losing party get out of the markets after an election loss to their retirement’s dismay.

In fact, studies suggest that politics make us stupid and less likely to objectively assess data and that the political divide in America is not a result of too little information but too much, as cited in the article “Don’t Let Politics Make You Afraid of Investing.”

This year, I looked at the returns of various sectors the day after the election and the following two weeks. I used the Vanguard Sector ETF funds and looked at their returns from the close on election day (Tuesday, November 5, 2024) to the close of the day after the election (November 6). I also looked at returns from November 5 until November 20, two weeks later.

I looked at these returns because client asked “Why? Why did the markets move this way?”

What I am about to present is a narrative for the stock market. Narratives get attention. They fund science studies and attract charitable donations. They fuel political campaigns. They attract attention to financial news. No one would click on the headline, “Stocks went up today and we have no clue why.” And yet headlines like that would be more accurate than most of the popular financial news.

Stories get simplified and compacted. When the story of a prediction is retold, past events are presented in light of what actually happened, ignoring details which would have supported a different outcome.

Our brains assume that a causal narrative is likely to be true. Because the outcome is presented in terms of what could have caused it, we may falsely suspect that we could have predicted this outcome. We cannot predict the outcome, and we should not join the wave while it is happening.

We would advise, “It is always a good time to have a balanced portfolio.” And when you aren’t sure what to do, we would recommend, “Rebalance your portfolio toward your target asset allocation.”

Such uninteresting advice will not make the news headlines, but we believe it will result in better long-term portfolio growth.

With that being said, this research was interesting because the immediate post-election trades in the markets appear to include a number of speculative trades based on expectations of what might do well now that Trump has won the presidency.

For example, Energy stocks (VDE) were up 4.09% the day after the election and up even more at 7.08% two weeks later. These trades appear to be bets based on Trump’s well known “Drill, baby, drill” mantra.

On the opposite end, Health Care (VHT) was the worst performing sector, up only 0.35% on election day and down -3.52% two weeks after the election. Foreign health care also did poorly. It is easy to wonder if this speculation reflects the nomination of RFK Jr. on November 14th as Department of Health and Human Services secretary.

Abroad, foreign developed countries (VEA) were down -1.28% on election day and extended that drop to -3.25% two weeks later. Similarly, emerging markets (VWO), which is mostly Chinese stocks, did poorly. Emerging markets were down -0.95% on election day and extended that drop to -3.90% two weeks later. It is easy to explain this performance as a reflection of Trump’s “America First” agenda.

Financials were up 6.77% on the day of the election and still up 6.92% two weeks later, continuing the odd trend for election cycles.

These narratives can sometimes be comforting. When something surprising happens, our minds immediately seek a cause, fabricating one if necessary. However, movements in the stock market, up or down, don’t have a single cause. Market prices are the result of billions of shares of stock being bought or sold. Such volume has millions of causes. And very few of those causes coincide with any given narrative that you might hear through news sources or financial professionals.

Consider for example other sector movements during the same time periods.

• Consumer Discretionary was up 3.30% on the day of the election and extended that to up 5.26% two weeks later.
• Information Technology was up 3.13% on the day of the election and still up 3.10% two weeks later.
• Communication Services were up 2.52% on election day and 3.03% two weeks later.
• Consumer Staples (VDC) were down -1.13% the day after the election and barely broken even at 0.18% two weeks later.
• Materials (VAW) were up 2.15% the day after the election but dropped to -0.56% two weeks later.
• Real Estate (VNQ) was down -0.95% the day after the election and still down -0.59% two weeks later.
• The S&P 500 was up 2.53% on November 6, 2024 and was up 2.32% two weeks after the election.

We can fabricate a narrative, as we did for the original list, and that fabricated narrative may bring us comfort. However, the worst thing we could do is act on that narrative.

While sentiments trump fundamentals in the short-term, in the long-run sentiments fade and the fundamentals prevail. Alas, the short-term of investing can be as long as a decade.

For example, in 1996 Alan Greenspan made his comment about the “irrational exuberance of the markets,” but it was another three-and-half years before the dot-com bubble broke in 2000. And when the markets turned to a bear a year later in 2001, large cap growth lost -68.47% of its value over the next three years.

When the masses feel something is good or bad, those feelings can drive market movements regardless of the underlying fundamentals.

We recommend investing for the long term such that your portfolio is optimized not for one set of politics but for what is expected to do well during the next two or three decades. Such uninteresting advice will not make the news headlines, but we believe it will result in better long-term portfolio growth.

Photo by Element5 Digital on Unsplash