As we enter the fall of 2024, markets are already showing signs of the volatility often associated with presidential election years. Historically, election years have brought heightened uncertainty as investors digest potential policy changes, market conditions, and the economic outlook tied to the new administration.
This year is no exception, with market volatility starting to pick up as we move through the first trading days of September. A quick look at the VIX (Volatility Index), often called the "fear index," reveals a notable uptick in market unease. In this blog, we’ll take a closer look at how volatility typically behaves during election years and how 2024 compares so far.
Election Year Volatility: A Pattern of Uncertainty
Historically, the VIX tends to rise in election years as uncertainty builds around the potential impact of new policies and leadership changes. The chart below compares the average volatility (as measured by the VIX) during election years to non-election years since 1990, with 2024’s data layered on top.
In the chart, you can see that election years (represented in blue) typically experience higher volatility than non-election years (in green). Investors become increasingly cautious as the election approaches, particularly in the months leading up to November (highlighted in yellow). The red dot represents the average election day, around the 212th trading day of the year, which is often a point near heightened volatility.
Chart Data Source: Macrotrends
What’s Happening in 2024?
As the orange line in the chart shows, 2024 has already begun to experience an increase in volatility earlier than usual. The first few trading days of September have marked a noticeable jump in the VIX, which may be a sign of more choppiness ahead. This could be due to several factors: uncertainty about the Federal Reserve’s next moves, inflation concerns, and the upcoming presidential election in November.
What Can Investors Expect?
If history is any guide, we can expect volatility to persist throughout the fall. The markets will likely continue to fluctuate as investors weigh the potential outcomes of the election and their implications for various sectors and the broader economy.
However, history also shows that volatility tends to moderate once the election results are finalized. Markets generally respond positively to the removal of uncertainty, regardless of which candidate wins. Investors and businesses gain more clarity around future policy directions, and this often leads to a more stable market environment. This post-election moderation is a critical point for long-term investors to remember, as it underscores the importance of not overreacting to short-term market turbulence.
Conclusion
Election seasons bring with them a wave of market volatility, and 2024 is shaping up to be no different. As the VIX suggests, we’re already seeing the beginnings of increased market uncertainty, and this trend is likely to continue as we head deeper into the election season. However, volatility has historically moderated following the election, offering more stability as the markets adjust to the new political landscape. For investors, the focus should remain on long-term goals rather than reacting to short-term swings, ensuring portfolios are well-positioned to navigate this period of heightened volatility.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
All investing involves risk including loss of principal. No strategy assures success or protects against loss.