Yahoo Finance What Will Election Bring About for Wall Street ETFs in 2024?
The presidential election in the United States is a pretty hot topic this year on Wall Street. RBC Wealth Management vice president and financial advisor Nora Yousif recently offered some insights on how to navigate the financial backdrop in election years. Yousif stressed on the importance of maintaining a long-term perspective despite short-term political volatility, as quoted on Yahoo Finance.
Market Trends During Election Years
Contrary to popular belief, election years tend to exhibit a consistent pattern of market behavior. Yousif pointed out that while volatility may increase leading up to elections due to heightened emotions and media frenzy, markets typically stabilize following the election.
Per some strategists, April tends to be flattish for Wall Street, followed by a slightly negative May. But, overall, election years emerge winners. Historical data since 1928 indicates that the market has ended higher than it started in 75% of election years, regardless of the election outcome.
Wells Fargo currently gives the highest target for the S&P 500 at 5,535 (indicating around 5% upside as of Apr 8, 2024), as quoted on Yahoo Finance. SPDR S&P 500 ETF SPY could be an ETF option to play in the election year.
Political Chances Not to Hurt Stocks Over Long Term
Yousif pointed to a common drawback seen among investors — aligning investment decisions with political beliefs. While political events may create short-term fluctuations, they have minimal long-term impact on market fundamentals such as earnings and economic cycles.
WisdomTree U.S. LargeCap ETF EPS, thus, seems to be a good bet. The underlying WisdomTree U.S. LargeCap Index is a fundamentally weighted index that measures the performance of earnings-generating companies within the large-capitalization segment of the U.S. Stock Market.
The S&P 500 earnings growth is expected to be 2.5% in Q1 of 2024. The earnings growth was 6.7% and 3.8% in the previous two quarters, respectively, per the Earnings Trends issued on Apr 3, 2024. The steady improvement in corporate earnings puts EPS in a better position.
Federal Reserve Policy and Interest Rates
Addressing concerns about Federal Reserve policy and interest rate fluctuations, Yousif advised investors not to succumb to FOMO (Fear of Missing Out) amid uncertainty. With interest rates likely to stabilize or decrease, she recommended locking in favorable rates through bonds, CDs, or Treasury bills for long-term financial security.
Investors can bet on intermediate term bond ETFs like iShares 7-10 Year Treasury Bond ETF IEF. Yield-to-Worst of the fund is 4.40%. Meanwhile, ETFs like iShares iBonds 2026 Term High Yield and Income ETF IBHF yield 7.43% annually. IBHF is up 1.5% this year.
Avoiding Market Timing: Try Good Quality ETFs
Attempting to time the market may hurt investment returns. Yousif emphasized the adage "time in the market, not timing the market" as a guiding principle for investors. As we know, the technology sector has the core essence of the market, one should have a well-diversified tech ETF in his kitty.
Zacks Rank #1 (Strong Buy) SPDR NYSE Technology ETF XNTK is one such example. The fund is up 10.8% this year (read: ETF Market Outlook & Investing Strategies for 2024).
iShares MSCI USA Quality Factor ETF QUAL, a Zacks Rank #3 (Hold) fund, is based on a traditional market capitalization-weighted parent index. The fund has jumped 14.2% this year and has gained 103.2% over the past five years.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
SPDR S&P 500 ETF (SPY): ETF Research Reports
iShares 7-10 Year Treasury Bond ETF (IEF): ETF Research Reports
iShares MSCI USA Quality Factor ETF (QUAL): ETF Research Reports
WisdomTree U.S. LargeCap ETF (EPS): ETF Research Reports
SPDR NYSE Technology ETF (XNTK): ETF Research Reports
iShares iBonds 2026 Term High Yield and Income ETF (IBHF): ETF Research Reports
