Stock markets hate political uncertainty; Just look at the decline in markets we saw after the referendum or at the end of Liz Truss's brief tenure.
And this distaste for political uncertainty is unfortunate, because if there is one thing that 2024 looks like is going to be important, it is political uncertainty.
Major elections will be held in more than 60 countries in 2024, making it the biggest election year in history, according to the New Statesman. In total, he notes, more than two billion people will go to the polls this year, roughly a quarter of the world's population.
Markets are not too nervous… yet
However, elections do not always bring political uncertainty. For example, few of us doubt the outcome of the elections in Russia.
But in the economies where most of us have our financial assets (the United Kingdom, the United States, Europe and large parts of Asia Pacific) elections are generally free, fair and not rigged.
So the result will always be surrounded by some uncertainty.
The markets are not particularly nervous (yet) about the US crisis. S&P 500 reaching a new record of 4,840, and the United Kingdom FTSE 100 trading around the same 7,500 level it has been at for most of the last few years, barring the pandemic.
But that could (and most likely will) change as we approach the fall, when the United States goes to the polls and when political pundits consider that Rishi Sunak is likely to call an election. The European Union elections are even earlier and just as unpredictable.
Gradual decline, not sudden drop
How might we expect this nervousness to manifest?
I think in two ways.
Firstly, it won't be like, say, the sudden drop we saw after the referendum, or in February and March 2020, when the reality of lockdowns emerged.
Trust will evaporate more slowly as the election approaches.
Secondly, there are willpower There will be times when the markets will get spooked, driven by opinion polls or statements by political candidates about their intentions.
So think of it as a series of downward steps, rather than a dizzying fall.
Keep your powder dry
The result is clear: Investors are being warned that bargains may be on offer in late summer and fall.
To do? How to play this?
At this point, I think you'd be tempted to keep your powder dry – set aside some investment capital so you can take advantage of market developments later.
Of course, there are no guarantees that bargains will be on offer – markets may turn out to be more optimistic than you expected about this political uncertainty.
But I guess that's unlikely. At the very least, it's the magnitude of what will happen in 2024 that makes unrest more likely: so many voters, so many elections, and so much geopolitical tension in the background.
Good investments, at an even better price
Here at The Motley Fool, we are mostly patient, long-term, buy-and-hold investors. We look for decent businesses, with decent prospects and advantages and, ideally, with high-caliber managers whose interests are aligned with ours.
And if, as happens, market conditions operate in such a way that the share price is a little cheaper than usual, then, well, we're not complaining.
So a little sensible patience could well be richly rewarded.
