By John Grace
Contribuitng Columnist
Let’s start by delving into the lessons history can teach us after the presidential elections.
Our first stop is the S&P 500, comprised of large companies that span all 11 stock market sectors and represent approximately 80% of domestic equities by market value.
There, we’ll uncover promising news. Then, we’ll turn our attention to potential challenges. Our goal for investors is to strive for a steady, unexciting consistency, regardless of market fluctuations such as sudden drops in stock and home prices, changes in interest rates or geopolitical events.
We look at the S&P 500 because it has 500 companies listed on the New York Stock Exchange and Nasdaq, making it a strong indicator of the stock market’s performance. The S&P 500 is doing something it does every four years: reacting to the results of another U.S. presidential election.
Most investors know election results can influence market sentiment. Still, they need to realize that the S&P 500 has typically generated above-average returns, meaning higher than the average market returns, during the 12 months following presidential elections, regardless of the results.
History suggests that through November 2025, the S&P 500 could advance by 14%, per the Motley Fool. While history says the stock market could continue climbing higher next year, history does not guarantee what will happen.
Several pundits believe this time will be different. It may be more like when Herbert Hoover took office in March 1929. He would not be re-elected after the stock market crash that began Oct. 24, 1929. Over $14 billion evaporated on Black Tuesday, Oct. 29.
With high unemployment rates and widespread poverty, Hoover was considered ineffective in handling the economic crisis. Hoover was remarkably clear-eyed and quite descriptive of the situation.
He said, “To be sure, we were due for some economic readjustment as a result of the orgy of stock speculation in 1928-1929.” That sounds very familiar to what’s happening now to my ears.
Economist Hans Sennholz argued that each of the previous five economic downturns had one thing in common: the federal government “generated a boom through easy money and credit, which was followed by the inevitable bust.”
Is it like deja vu or is this time different?
Predicting what might happen in the future is impossible, but investors can be better prepared for the good, the bad and the unforeseen. Let’s see how you can invest beyond the traditional. This concept helped some investors better weather the stock market rout of 2022.
Alternative investments might offer an opportunity for improved risk-adjusted returns, greater diversification, income generation, inflation protection and recession risk. If the term “alternatives” or “alts” is new, explore some options you may already know.
Real estate, gold and bitcoin are just a few examples of the diverse range of assets that fall under the umbrella of alternatives. These assets, which extend beyond stocks, bonds, and cash-generating accounts, offer unique characteristics that can align with different investing goals and risk profiles. Could the Fed run out of bullets?
We would not be surprised to see residential real estate prices and the stock market suddenly look like Wily E. Coyote screaming, “How low can we go?” And prices may take longer than investors imagine to recover fully.
The areas we are fond of include owning a pool of privately held companies, warehouses, industrial properties, student housing and data center infrastructure.
Alternative investments can range from very liquid to illiquid. Alternative investments typically don’t correlate to the stock market, which means they can be used in addition to traditional asset classes to add diversification and help mitigate negative volatility.
Preparation trumps prediction.
The S&P 500 is a stock market index tracking the stock performance of 500 of the largest companies listed on stock exchanges in the United States. Indexes are unmanaged and cannot be invested in directly.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
Alternative investments may not be suitable for all investors and should be considered as an investment for the risk capital portion of the investor’s portfolio. The strategies employed in the management of alternative investments may accelerate the velocity of potential losses.
John Grace is a registered representative with LPL Financial. His On the Money column runs monthly in The Wave. The opinions expressed here are for general information only and are not intended to provide specific advice or recommendations for any individual.
LIFTOUT
While history says the stock market could continue climbing higher next year, history does not guarantee what will happen.
