Effective Date: November 6, 2024
SUMMARY
Two of the most positive outcomes of the recent election are that it is over and there is a clear winner, avoiding any prolonged uncertainty or legal disputes. The initial market reaction to President Trump’s win has been positive, with U.S. equities rising and international equities and bonds declining. Markets have performed well throughout 2024, largely due to the central banks’ shifts in interest rate policies. The U.S. Federal Reserve is expected to announce another interest rate cut of 0.25% on November 7, 2024. Historically, November and December are positive months in election years as investors move past election-related uncertainty. If markets continue to be strong, the plan is to rebalance portfolios in December with some allocation changes.
ADDITIONAL ANALYSIS
Following the election results, U.S. equity markets have risen intraday, with the S&P 500 up by 1.8% and the Russell 2000 (small-cap companies) up by 4.5%. International and emerging market equities have declined by 1.7%, while the U.S. aggregate bond index is down 0.8% due to rising interest rates. The U.S. dollar has strengthened, and oil prices have dropped. There are two interpretations of the market's reaction. First, President Trump’s "America First" policies may favor U.S. companies at the expense of foreign firms and contribute to inflation through tariffs. Alternatively, these policies could stimulate U.S. growth with the possibility of lower taxes. Both interpretations likely hold some validity. With both Houses of Congress likely under Republican leadership, significant economic and tax legislation may pass in the coming months, though we will need to wait to assess its impact.
As mentioned, U.S. equities tend to perform well in the three months following a presidential election no matter the outcome. An analysis by FundStrat reveals that since 1900, U.S. equities have averaged a 5.5% gain in this period (based on 31 elections) with a 61% success rate. However, in non-recession years like 2024 when markets are up going into the election like 2024, the average gain improves to 7.2% with a 100% success rate. While past performance does not guarantee future returns, election years typically provide a positive tailwind.
Market performance in 2024 has been strong despite the election, driven by declining inflation, the Federal Reserve’s rate cuts, and a resilient economy—all factors likely to persist regardless of the election outcome.
We last rebalanced the portfolio in July. If markets remain strong through year-end, we will likely rebalance portfolios again in December, adjusting qualified accounts fully and taxable accounts gradually to manage taxes. Planned adjustments include reducing U.S. S&P 500 allocations by 3% in favor of bonds, given higher S&P 500 valuations and improved bond returns with higher interest rates. This reallocation will leave portfolios underweight in real estate (5%), modestly overweight in U.S. equities (2%), and overweight in bonds (3%).
Finally, in rebalancing qualified accounts at Schwab, we will switch from our core SP 500 position (SPY) to a lower-cost S&P 500 Vanguard position (VOO). We will retain SPY in existing taxable accounts, while VOO will offer the same investment benefits at a lower cost for new positions.
