Risk Aversion Sweeps the Market as Investors Seek Safe Havens Before the Election

America’s Election Day Jitters

A recent survey by Janus Henderson found that 6 in 10 investors plan to reduce their portfolio risk until the election is decided. But is this a good move?

Election Year Market Performance

Despite recent volatility, the market continues to show signs of strength. According to T. Rowe Price, the S&P 500 performs only marginally better in non-election years. In fact, data shows that the S&P 500 returns are generally higher in the runup to a presidential election than in non-election years.

Conflating Economics and Stocks

Investors often confuse the state of the economy with the health of the stock market. However, according to Little Harbor Advisors, the market, going back to 1950, hits its highest levels on average seven months before a recession even begins. It typically hits its lowest point eight months before the recession ends.

You Can’t Time the Market

Historical data indicates that the market performs nearly as well during election years as it does in non-election years. Therefore, it’s unwise for investors to be shying away from stocks in favor of cash positions or lower-risk assets. The Fed’s rate-cutting policy could serve as an impetus for the market to finish the year on a strong note.

Avoiding Pullbacks and Corrections

Market timing is statistically a mistake. Investors who constantly change their behavior to attempt to avoid pullbacks, corrections, or bear markets are likely to miss out on subsequent gains. Instead, investors should be using perceived market weakness as a buying opportunity.
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