This time usually comes with drops in the stock market’s major indexes.
The U.S. presidential election season is in full swing, and we’re less than two months away from casting our votes for many of our next political leaders.
Along with political ads seemingly taking over every commercial break, election season has often had investing implications. Unfortunately, it hasn’t always been in investors’ favor. In recent times, the two-month lead-up to the presidential election has come with negative stock market performances.
Here’s how the stock market’s three main indexes — the S&P 500, Nasdaq Composite, and Dow Jones — have performed in the two months leading up to every presidential election since 2000.
| Year | S&P 500 Returns | Nasdaq Composite Returns | Dow Jones Returns |
|---|---|---|---|
| 2000 | (4.7%) | (16.7%) | (2.7%) |
| 2004 | 1.1% | 5.9% | (2.5%) |
| 2008 | (18.7%) | (21.2%) | (14%) |
| 2012 | (0.3%) | (4%) | (0.3%) |
| 2016 | (1.9%) | (1.3%) | (0.8%) |
| 2020 | (2.5%) | (2.6%) | (2.9%) |
Data source: Dow Jones.
Use historical happenings as a reference, not an end-all-be-all
Since 2004, none of the three major indexes have finished the two-month stretch leading up to the presidential election with positive returns. The S&P 500 and Nasdaq Composite finished positive in 2004, but that’s the only time it has happened since the turn of the millennium.
This isn’t to say the election is the sole cause (it’s not), but the uncertainty that often comes with election season plays a role in the market volatility during this time. It also doesn’t mean it’s guaranteed to happen this year. Past performances and occurrences don’t guarantee future performances or occurrences.
So it’s important to keep in mind that timing the market isn’t a sound strategy for long-term investors.
Image source: Getty Images.
Still. patterns like this are worth knowing and paying attention to, but they’re not definitive predictions of what will happen. Nobody can predict how the stock market will perform in the short term, including me, you, Wall Street executives, or the most seasoned investors.
Now could be a good time to focus on dividend income
When approaching a historically volatile time, leaning on a dividend-focused exchange-traded fund (ETF) could be a good idea. On one hand, the focus on dividends gives investors guaranteed income. On the other hand, going the ETF versus individual stock route can help provide some stability, because the risk is spread across numerous companies.
One good option to consider is the Schwab U.S. Dividend Equity ETF (SCHD 0.10%), which contains over 100 high-dividend-yielding stocks with a history of above-average dividends and solid financials. The inclusion criteria help prevent companies from being added to the ETF simply because they have a high yield. It’s a natural quality control, for the most part.
This ETF’s dividend yield is around 3.4%, well over double the S&P 500’s average yield. It might not be the ultra-high yield you can receive from certain individual stocks it holds — such as Altria Group, with a yield over 7.5% — but it’s a solid amount for a broad ETF.
The ETF’s quarterly dividend payout fluctuates because its companies’ payouts vary. However, you can trust that it will increase over the years. In the past 10 years alone, the dividend has more than tripled to around $0.82.
SCHD Dividend data by YCharts.
You can adjust, but don’t change completely
You shouldn’t look at historical stock market moves and use them to completely change your investing strategy. You can adjust it to account for long-term trends or changes in your risk tolerance, but completely changing it teeters on the line of trying to time the market, which you always want to avoid.
What’s more effective than adjusting your stock portfolio to account for every historical pattern is remaining consistent through the ups and downs. That’s the one thing any investor can control.
Using a strategy like dollar-cost averaging is helpful because you establish a set investing schedule and stick to it regardless of the market’s movements. Sometimes, you’ll buy when stocks are rising, and sometimes, you’ll buy when they’re falling. The key is to trust that it’ll even out over time, and this should save you a lot of extra work along the way.
Stefon Walters has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
