Did Political Turmoil Ahead of the Presidential Election Impact Investment Strategy?

US Presidential elections are closely watched by advisors and investors. Market volatility often increases around these periods, making them key moments to engage clients on portfolio goals and tactical opportunities. However, history suggests the market's reaction to presidential elections is difficult to predict. Given the unusual nature of this cycle, we attempted to see if any patterns emerged. 

Morningstar surveys advisors and investors about all sorts of topics as part of our Voice of the Investor and Voice of the Advisor market research programs. Leading up to the 2024 US Presidential election, we queried these two groups at several key points in time to identify:

• Are advisors and/or investors concerned about market volatility leading up to the election?
• Are advisors and/or investors adjusting their investment strategies in anticipation of election results?
• Are advisors and/or investors altering their investment strategies to focus more on short-term goals or long-term goals, or are they sticking with their established timeline?

Morningstar’s Senior U.S. Economist Preston Caldwell, Senior U.S. Market Strategist David Sekera, Consumer Sector Director of Equity Analysis North America Erin Lash, and Senior Director of Market Research Joe Agostinelli dove into the survey results in a webinar recorded Nov. 12, 2024. Watch the replay on demand here.

Below we’ll outline our survey methodology and key findings.

Throughout 2024, Morningstar gathered insights from U.S. retail investors and advisors via multiple online surveys. Within these surveys we maintained consistent respondent profile weighting across time periods to ensure comparability.

Surveys covering these election-related questions were conducted during the following time periods:

• Pre-Trump assassination attempt (Initial read)
  • Advisors: July 8-13
  • Retail Investors: March 7-22
• Post-Trump assassination attempt, before Biden/Harris announcement
  • Mid-July
• After Biden/Harris announcement
  • Mid-to-late July
• Post-Harris/Trump Debate
  • Mid-September (retail investors only)

Retail investors are generally more concerned than financial advisors about market volatility leading up to the election. Across the four survey periods, the percentage of concerned retail investors fluctuated slightly, rising from 48% to 54% before dropping to 50% and then 47%. Overall, the level of concern remained fairly consistent throughout the measured timeframes.

In contrast, our surveys showed that 29% of financial advisors initially expressed concern, which then dipped to 25% before rising to 36% following Biden's announcement not to seek reelection. Despite this fluctuation, concern among financial advisors remained statistically stable overall. Those same advisors estimated that their clients were more concerned than either they themselves or retail investors.

As a baseline, about half of investors plan to make some sort of adjustment to their investment strategy in anticipation of the election. However, that number jumped to 71% directly after the announcement that Joe Biden would not run for re-election.

Across the four points we measured over the last nine months, the Biden announcement not to seek reelection and to throw his support behind Kamala Harris seemed to trigger the most significant uncertainties for investors. Unlike the other major events—such as the assassination attempt that created short term shock—the announcement may pose direct questions about potential shifts in monetary or regulatory policy under a new administration.  By placing Harris on the ticket, the potential for these changes brought short- and long-term investment strategies into sharper focus for many investors. Other events, though sensationalized and politically charged, did not carry the same perceived threat to long-term market stability, making shifts in investment strategy less pressing.

Biden’s decision to exit the race prompted the most significant shift in strategy timelines: 37% of retail investors indicated they would pivot to a short-term focus, up from 22% in our initial survey. Meanwhile, the percentage of retail investors leaning toward a long-term strategy remained steady, hovering just above 30% across all four surveys.

Despite the unusual events leading up to the 2024 election, retail investors and advisors largely planned to maintain a steady approach to their investment strategies. Our research highlights that advisors continued to provide the stability clients need during periods of market volatility and political uncertainty. For those looking for validation on the importance of proactive communication, our research shows that emphasizing investment education during pivotal market events can have a big impact on investment behavior and help clients stay the course.

On Nov. 12, 2024, Morningstar hosted a webinar titled Investor Impact: How the U.S. Presidential Election is Affecting Investors. The findings and implications of the surveys referenced in this blog were discussed in greater detail by Senior U.S. Economist Preston Caldwell, Senior U.S. Market Strategist David Sekera, Consumer Sector Director of Equity Analysis North America Erin Lash, and Senior Director of Market Research Joe Agostinelli. It’s free to watch and available on demand.