%20(1).jpg?width=264&height=160&name=Website%20Featured%20Content%20Images%20(2)%20(1).jpg)
%20(1).jpg?width=264&height=160&name=Website%20Featured%20Content%20Images%20(4)%20(1).jpg)
-Mar-08-2024-08-50-35-9527-PM.png?width=300&height=175&name=Untitled%20design%20(1)-Mar-08-2024-08-50-35-9527-PM.png)
%20(1)-1.jpg?width=264&height=160&name=Website%20Featured%20Content%20Images%20(2)%20(1)-1.jpg)
-1.jpg?width=264&height=160&name=Website%20Featured%20Content%20Images%20(1)-1.jpg)
%20(1).jpg?width=264&height=160&name=Website%20Featured%20Content%20Images%20(3)%20(1).jpg)
.jpg)
-1.webp)
As November approaches, investors will hear increasingly confident predictions about what a change in Congress could mean for public policy, the economy, and the markets. Depending on which side is speaking, the same election result may be described as either a major opportunity or an economic disaster.
That naturally raises a question: Should investors adjust their portfolios before the election?
Midterm Years Can Be Uncomfortable
Historically, midterm election years have been particularly difficult for investors, producing the lowest average returns of the four-year election cycle¹. Averages conceal a wide range of outcomes, however, and individual years have strayed far from the pattern in both directions.
One likely contributor is uncertainty. The president’s party often loses seats during the midterms, which can alter the balance of power in Washington and reshape expectations for future policy. Until the outcome becomes clearer, investors are left trying to price a wide range of possibilities. That uncertainty can make markets more sensitive to new information.
An understanding of this history provides perspective. A difficult stretch during a midterm year is not unusual, nor does it signal that something has gone wrong.
The Longer View Tells a More Important Story
The chart below shows the hypothetical growth of $1 invested in the S&P 500 beginning in 1926. The colors represent periods when Congress was controlled by Republicans, controlled by Democrats, or divided between the two parties.
Source: Dimensional Fund Advisors
Notice that no single color corresponds to a distinctly better or worse slope. Over the past century, investors have experienced every possible political configuration. They have also lived through recessions, wars, inflation, financial crises, pandemics, and dramatic changes in technology. Through all of it, the long-term direction of the market has been higher.
Elections are not irrelevant, and the policies that follow can have meaningful economic consequences. The chart above makes clear that congressional control, by itself, has not provided investors with a dependable signal for when to enter or exit the market.
Markets Care About More Than Politics
Stock prices ultimately reflect what investors expect businesses to earn in the years ahead, shaped by economic growth, inflation, interest rates, and valuations. Political control can influence those expectations, but it is one input among many.
Because markets continually incorporate new information, a likely election result may be reflected in prices well before it becomes official. The reaction on Election Day can therefore look very different from what seemed obvious beforehand. A favored party can win while stocks fall, or a feared result can arrive while stocks rise. Being right about the election does not reliably translate into being right about the market.
Vote According to Your Values, But Invest According to Your Plan
The urge to act before a major event is natural. Doing something feels responsible, while doing nothing can feel passive. In investing, however, activity and progress are not the same thing. The most productive steps are usually the least dramatic ones.
That means maintaining a diversified portfolio, keeping near-term spending needs out of volatile investments, and periodically rebalancing back toward the intended allocation. Election-related volatility may create opportunities to rebalance, but it should not prompt all-or-nothing moves between cash and risky assets.
Elections matter, and the policies that follow can have real consequences. A long-term investment plan, however, should be designed to survive many election cycles, including outcomes an investor may not expect or prefer. History suggests the discomfort of a midterm year is something to be prepared for, not traded around.
Week in Review
- The FOMC will conclude its fifth meeting of 2026 on Wednesday, July 29th. While markets broadly expect the Fed to leave rates unchanged, Fed funds futures imply a 31% probability of a rate hike. Looking ahead, futures markets are pricing in one to two 25-basis-point hikes by year-end. Inflation, elevated oil prices tied to Middle East tensions, and Chair Kevin Warsh's decision to move away from providing forward guidance have left markets with less clarity on the future path of monetary policy.
- Initial jobless claims in the U.S. fell by 22,000 to 187,000 for the week ending July 18th. This marks the lowest seasonally adjusted level of first-time filings for unemployment benefits since September of 1969.
- According to FactSet, 27% of the S&P 500 reported Q2 results as of July 24th. The earnings growth rate, blended between companies that have already reported and estimates for those that have yet to report, now stands at 37.9%, marking the highest year-over-year earnings growth rate for the index since Q3 2021 and the second straight quarter of 20%+ earnings growth.
Hot Reads
Markets
- Kevin Warsh Wanted a 'Good Family Fight' at the Fed. He's Getting One. (WSJ)
- The Fed is Heading Into One of Its Most Unpredictable Meetings in Years (WSJ)
- What Trump's Latest Tariffs Mean for the American Economy (WSJ)
Investing
- The Stock Market Is Not Your Rich Uncle (Jason Zweig)
- Picking Stocks in a Bloodbath (Ben Carlson)
- Private-Equity Assets Stuck in "Zombie Funds" Are at a Record High (WSJ)
Other
- Nebraska Spent $165 Million to Prove They're Back - Full Facility Tour (YouTube)
- The Science Behind Dramatically Better Conversations - TED (YouTube)
- How the Electrical Grid is Being Rebuilt for AI - Bloomberg Originals (YouTube)
Markets at a Glance
Fund Returns
Sector Returns
Factor Returns
Source: Morningstar Direct.
Source: Morningstar Direct.
Source: Treasury.gov
Source: Treasury.gov
Source: FRED Database & ICE Benchmark Administration Limited (IBA)
Source: FRED Database & ICE Benchmark Administration Limited (IBA)
Economic Calendar
Source: MarketWatch
- Competition, Achiever, Relator, Analytical, Ideation
Josh Jenkins, CFA
Chief Investment Officer, Principal
Josh Jenkins, Chief Investment Officer, began his career in 2010. With a background in investment analysis and portfolio management from his previous roles, he quickly advanced to his current leadership position. As a member of the Lutz Financial Board and Chair of the Investment Committee, he guides Lutz Financial’s investment strategy and helps to manage day-to-day operations.
Leading the investment team, Josh directs research initiatives, while overseeing asset allocation, fund selection, portfolio management, and trading. He authors the weekly Financial Market Update, providing clients with timely insights on market conditions and economic trends. Josh values the analytical nature of his work and the opportunity to collaborate with talented colleagues while continuously expanding his knowledge of the financial markets.
At Lutz, Josh exemplifies the firm’s commitment to maintaining discipline and helping clients navigate market uncertainties with confidence. While staying true to the systematic investment process, he works to keep clients' long-term financial goals at the center of his decision-making.
Josh lives in Omaha, NE. Outside the office, he likes to stay active, travel, and play golf.
Recent News & Insights
Market Commentary
The Market & The Midterms
As November approaches, investors will hear increasingly confident predictions about what a ...
Recent News
Lutz Announces 2026 Senior through Manager Promotions
Lutz, a Nebraska-based business solutions firm, recently announced multiple promotions to ...
Recent News
Lutz Announces 2026 Shareholder & Director Promotions
Lutz, a Nebraska-based business solutions firm, is proud to announce the promotion of 10 team ...
Nonprofit
Internal Controls for Nonprofit Organizations: Safeguarding Your Mission
Nonprofit organizations operate with a high level of accountability, ensuring every dollar ...
Let’s get you where you want to go.
We work to simplify complexities, help make critical business decisions, and confidently focus on the things that are truly important to you. We embrace your business as our own to spark the right solutions and help you thrive.