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U.S. Elections: Charting Patterns in Market Volatility

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Us election volatility in markets

This Markets in a Minute Chart is available as a poster.

U.S. Elections: Charting Patterns in Market Volatility

Do elections influence market volatility?

Over 90 years of data shows that volatility jumps 30% in the five months leading up to an election. But while elections have historically stoked uncertainty in the market, in reality, the scale of their impact plays a relatively minor role.

This Markets in a Minute chart from New York Life Investments shows volatility trends surrounding elections over the last century, and how investors can best position themselves amid market turbulence.

Making Sense of Market Volatility

Volatility is when a security has sharp price movements in either direction. The market’s volatility is measured by the CBOE Volatility Index (VIX), also known as the ‘fear gauge’ for the market. The higher the VIX reading, the higher the volatility.

The five-year average VIX value is 15.8, with an an all-time low of 9.1 in November 2017, and reaching an all-time high of 82.7 in March 2020. Specifically, in the five months ahead of U.S. elections, the VIX tends to fall between 14 and 18.

MonthAverage Monthly VIX During U.S. Election Years Since 1928
July14.2
August15.0
September16.0
October17.4
November18.0
December14.7

Source: Eureka Report

After the dust settles from elections, market volatility reduces as investors gain more clarity on government direction.

In short, in the six months following an election, volatility tends to fall on a downward sloping trajectory.

Finding Opportunity Surrounding U.S. Elections

With volatility here to stay, investors can utilize a number of portfolio strategies prior to elections.

  1. Stay the course: The easiest thing investors can do is nothing. Ignoring irrational market activity and staying invested will help you keep your investment goals on track.
  2. Focus on value: Investors can focus on companies with sound balance sheets that return value back to shareholders, such as fixed-income investments or dividend-paying stocks. For instance, when concerns circled around increased taxes on investment income in 2012, no less than 1,100 companies issued a special dividend following the election.
  3. Bargain hunt: Overvalued stocks, or sectors in the policy spotlight, can temporarily dip amid market fear. For example, in 2016 the health care sector saw new policies that investors feared would have damaging effects. Ultimately, these concerns were overdone, and the sector rallied after the election.

Focusing on solid company fundamentals can offer windows of opportunity to investors who look past the short-term volatility.

Long-Term Areas to Focus On

Investors can look to structural factors, such as the economic environment, that have a more powerful impact on financial markets.

Interest rates, low bond yields and policy measures, among others, have a greater influence on market performance. Rather than paying attention to short-term volatility, investors can also focus on policy changes that have a lasting impact on the economy:

  1. Employment: Economic policies that help to promote workforce outcomes will have positive impacts on earnings growth, market performance, and investor portfolios.
  2. Taxes: Tax policies reallocate capital. Corporate tax cuts, for instance, can buoy markets and investor optimism.
  3. COVID-19 containment: The policies in place in response to COVID-19, such as the CARES Act, will have a marked impact on investor sentiment, company earnings, and ultimately economic resilience.

Looking past the election, and keeping an eye on policy shifts, could provide more insight into key forces shaping the future of the economy.

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Markets in a Minute

Mapped: GDP Growth Forecasts by Country, in 2023

The global economy faces an uncertain future in 2023. This year, GDP growth is projected to be 2.9%—down from 3.2% in 2022.

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GDP Growth

Mapped: GDP Growth Forecasts by Country, in 2023

Since Russia’s invasion of Ukraine early last year, talk of global recession has dominated the outlook for 2023.

High inflation, spurred by rising energy costs, has tested GDP growth. Tightening monetary policy in the U.S., with interest rates jumping from roughly 0% to over 4% in 2022, has historically preceded a downturn about one to two years later.

For European economies, energy prices are critical. The good news is that prices have fallen recently since March highs, but the continent remains on shaky ground.

The map shows GDP growth forecasts by country for the year ahead, based on projections from the International Monetary Fund (IMF) October 2022 Outlook and January 2023 update.

2023 GDP Growth Outlook

The world economy is projected to see just 2.9% GDP growth in 2023, down from 3.2% projected for 2022.

This is a 0.2% increase since the October 2022 Outlook thanks in part to China’s reopening, higher global demand, and slowing inflation projected across certain countries in the year ahead.

With this in mind, we show GDP growth forecasts for 191 jurisdictions given multiple economic headwinds—and a few emerging bright spots in 2023.

Country / Region2023 Real GDP % Change (Projected)2022 Real GDP % Change (Projected)
🇦🇱 Albania2.5%4.0%
🇩🇿 Algeria2.6%4.7%
🇦🇴 Angola3.4%2.9%
🇦🇬 Antigua and Barbuda5.6%6.0%
🇦🇷 Argentina*2.0%4.0%
🇦🇲 Armenia3.5%7.0%
🇦🇼 Aruba2.0%4.0%
🇦🇺 Australia*1.6%3.8%
🇦🇹 Austria1.0%4.7%
🇦🇿 Azerbaijan2.5%3.7%
🇧🇭 Bahrain3.0%3.4%
🇧🇩 Bangladesh6.0%7.2%
🇧🇧 Barbados5.0%10.5%
🇧🇾 Belarus0.2%-7.0%
🇧🇪 Belgium0.4%2.4%
🇧🇿 Belize2.0%3.5%
🇧🇯 Benin6.2%5.7%
🇧🇹 Bhutan4.3%4.0%
🇧🇴 Bolivia3.2%3.8%
🇧🇦 Bosnia and Herzegovina2.0%2.4%
🇧🇼 Botswana4.0%4.1%
🇧🇷 Brazil*1.2%2.8%
🇧🇳 Brunei Darussalam3.3%1.2%
🇧🇬 Bulgaria3.0%2.9%
🇧🇫 Burkina Faso4.8%3.6%
🇧🇮 Burundi4.1%3.3%
🇨🇻 Cabo Verde4.8%4.0%
🇨🇲 Cameroon4.6%3.8%
🇰🇭 Cambodia6.2%5.1%
🇨🇦 Canada*1.5%3.3%
🇨🇫 Central African Republic3.0%1.5%
🇹🇩 Chad3.4%3.3%
🇨🇱 Chile-1.0%2.0%
🇨🇳 China*5.3%3.2%
🇨🇴 Colombia2.2%7.6%
🇰🇲 Comoros3.4%3.0%
🇨🇷 Costa Rica2.9%3.8%
🇨🇮 Côte d'Ivoire6.5%5.5%
🇭🇷 Croatia3.5%5.9%
🇨🇾 Cyprus2.5%3.5%
🇨🇿 Czech Republic1.5%1.9%
🇨🇩 Democratic Republic of the Congo6.7%6.1%
🇩🇰 Denmark0.6%2.6%
🇩🇯 Djibouti5.0%3.6%
🇩🇲 Dominica4.9%6.0%
🇩🇴 Dominican Republic4.5%5.3%
🇪🇨 Ecuador2.7%2.9%
🇪🇬 Egypt*4.0%6.6%
🇸🇻 El Salvador1.7%2.6%
🇬🇶 Equatorial Guinea-3.1%5.8%
🇪🇷 Eritrea2.9%2.6%
🇪🇪 Estonia1.8%1.0%
🇸🇿 Eswatini1.8%2.4%
🇪🇹 Ethiopia5.3%3.8%
🇫🇯 Fiji6.9%12.5%
🇫🇮 Finland0.5%2.1%
🇫🇷 France*0.7%2.5%
🇲🇰 North Macedonia3.0%
🇬🇦 Gabon3.7%2.7%
🇬🇪 Georgia4.0%9.0%
🇩🇪 Germany*0.1%1.5%
🇬🇭 Ghana2.8%3.6%
🇬🇷 Greece1.8%5.2%
🇬🇩 Grenada3.6%3.6%
🇬🇹 Guatemala3.2%3.4%
🇬🇳 Guinea5.1%4.6%
🇬🇼 Guinea-Bissau4.5%3.8%
🇬🇾 Guyana25.2%57.8%
🇭🇹 Haiti0.5%-1.2%
🇭🇳 Honduras3.5%3.4%
🇭🇰 Hong Kong SAR3.9%-0.8%
🇭🇺 Hungary1.8%5.7%
🇮🇸 Iceland2.9%5.1%
🇮🇳 India*6.1%6.8%
🇮🇩 Indonesia*4.8%5.3%
🇮🇶 Iraq4.0%9.3%
🇮🇪 Ireland4.0%9.0%
🇮🇷 Iran*2.0%3.0%
🇮🇱 Israel3.0%6.1%
🇮🇹 Italy*0.6%3.2%
🇯🇲 Jamaica3.0%2.8%
🇯🇵 Japan*1.8%1.7%
🇯🇴 Jordan2.7%2.4%
🇰🇿 Kazakhstan*4.3%2.5%
🇰🇪 Kenya5.1%5.3%
🇰🇮 Kiribati2.4%1.0%
🇰🇷 South Korea*1.7%2.6%
🇽🇰 Kosovo3.5%2.7%
🇰🇼 Kuwait2.6%8.7%
🇰🇬 Kyrgyz Republic3.2%3.8%
🇱🇦 Lao P.D.R.3.1%2.2%
🇱🇻 Latvia1.6%2.5%
🇱🇸 Lesotho1.6%2.1%
🇱🇷 Liberia4.2%3.7%
🇱🇾 Libya17.9%-18.4%
🇱🇹 Lithuania1.1%1.8%
🇱🇺 Luxembourg1.1%1.6%
🇲🇴 Macao SAR56.7%-22.4%
🇲🇬 Madagascar5.2%4.2%
🇲🇼 Malawi2.5%0.9%
🇲🇾 Malaysia*4.4%5.4%
🇲🇻 Maldives6.1%8.7%
🇲🇱 Mali5.3%2.5%
🇲🇹 Malta3.3%6.2%
🇲🇭 Marshall Islands3.2%1.5%
🇲🇷 Mauritania4.8%4.0%
🇲🇺 Mauritius5.4%6.1%
🇲🇽 Mexico*1.7%2.1%
🇫🇲 Micronesia2.9%-0.6%
🇲🇩 Moldova2.3%0.0%
🇲🇳 Mongolia5.0%2.5%
🇲🇪 Montenegro2.5%7.2%
🇲🇦 Morocco3.1%08%
🇲🇿 Mozambique4.9%3.7%
🇲🇲 Myanmar3.3%2.0%
🇳🇦 Namibia3.2%3.0%
🇳🇷 Nauru2.0%0.9%
🇳🇵 Nepal5.0%4.2%
🇳🇱 Netherlands*0.6%4.5%
🇳🇿 New Zealand1.9%2.3%
🇳🇮 Nicaragua3.0%4.0%
🇳🇪 Niger7.3%6.7%
🇳🇬 Nigeria*3.2%3.2%
🇳🇴 Norway2.6%3.6%
🇴🇲 Oman4.1%4.4%
🇵🇰 Pakistan*2.0%6.0%
🇵🇼 Palau12.3%-2.8%
🇵🇦 Panama4.0%7.5%
🇵🇬 Papua New Guinea5.1%3.8%
🇵🇾 Paraguay4.3%0.2%
🇵🇪 Peru2.6%2.7%
🇵🇭 Philippines*5.0%6.5%
🇵🇱 Poland*0.3%3.8%
🇵🇹 Portugal0.7%6.2%
🇵🇷 Puerto Rico0.4%4.8%
🇶🇦 Qatar2.4%3.4%
🇨🇬 Republic of Congo4.6%4.3%
🇷🇴 Romania3.1%4.8%
🇷🇺 Russia*0.3%-3.4%
🇷🇼 Rwanda6.7%6.0%
🇼🇸 Samoa4.0%-5.0%
🇸🇲 San Marino0.8%3.1%
🇸🇹 São Tomé and Príncipe2.6%1.4%
🇸🇦 Saudi Arabia*2.6%7.6%
🇸🇳 Senegal8.1%4.7%
🇷🇸 Serbia2.7%3.5%
🇸🇨 Seychelles5.2%10.9%
🇸🇱 Sierra Leone3.3%2.4%
🇸🇬 Singapore2.3%3.0%
🇸🇰 Slovak Republic1.5%1.8%
🇸🇮 Slovenia1.7%5.7%
🇸🇧 Solomon Islands2.6%-4.5%
🇸🇴 Somalia3.1%1.9%
🇿🇦 South Africa*1.2%2.1%
🇸🇸 South Sudan5.6%6.5%
🇪🇸 Spain*1.1%4.3%
🇱🇰 Sri Lanka-3.0%-8.7%
🇰🇳 St. Kitts and Nevis4.8%9.8%
🇱🇨 St. Lucia5.8%9.1%
🇻🇨 St. Vincent and the Grenadines6.0%5.0%
🇸🇩 Sudan2.6%-0.3%
🇸🇷 Suriname2.3%1.3%
🇸🇪 Sweden-0.1%2.6%
🇨🇭 Switzerland0.8%2.2%
🇹🇼 Taiwan2.8%3.3%
🇹🇯 Tajikistan4.0%5.5%
🇹🇿 Tanzania5.2%4.5%
🇹🇭 Thailand*3.7%2.8%
🇧🇸 The Bahamas4.1%8.0%
🇬🇲 The Gambia6.0%5.0%
🇹🇱 Timor-Leste4.2%3.3%
🇹🇬 Togo6.2%5.4%
🇹🇴 Tonga2.9%-2.0%
🇹🇹 Trinidad and Tobago3.5%4.0%
🇹🇳 Tunisia1.6%2.2%
🇹🇷 Turkey*3.0%5.0%
🇹🇲 Turkmenistan2.3%1.2%
🇹🇻 Tuvalu3.5%3.0%
🇺🇬 Uganda5.9%4.4%
🇺🇦 UkraineN/A-35.0%
🇦🇪 United Arab Emirates4.2%5.1%
🇬🇧 United Kingdom*-0.6%3.6%
🇺🇲 U.S.*1.4%1.6%
🇺🇾 Uruguay3.6%5.3%
🇺🇿 Uzbekistan4.7%5.2%
🇻🇺 Vanuatu3.1%1.7%
🇻🇪 Venezuela6.5%6.0%
🇻🇳 Vietnam6.2%7.0%
West Bank and Gaza3.5%4.0%
🇾🇪 Yemen3.3%2.0%
🇿🇲 Zambia4.0%2.9%
🇿🇼 Zimbabwe2.8%3.0%

*Reflect updated figures from the January 2023 IMF Update.

The U.S. is forecast to see 1.4% GDP growth in 2023, up from 1.0% seen in the last October projection.

Still, signs of economic weakness can be seen in the growing wave of tech layoffs, foreshadowed as a white-collar or ‘Patagonia-vest’ recession. Last year, 88,000 tech jobs were cut and this trend has continued into 2023. Major financial firms have also followed suit. Still, unemployment remains fairly steadfast, at 3.5% as of December 2022. Going forward, concerns remain around inflation and the path of interest rate hikes, though both show signs of slowing.

Across Europe, the average projected GDP growth rate is 0.7% for 2023, a sharp decline from the 2.1% forecast for last year.

Both Germany and Italy are forecast to see slight growth, at 0.1% and 0.6%, respectively. Growth forecasts were revised upwards since the IMF’s October release. However, an ongoing energy crisis exposes the manufacturing sector to vulnerabilities, with potential spillover effects to consumers and businesses, and overall Euro Area growth.

China remains an open question. In 2023, growth is predicted to rise 5.2%, higher than many large economies. While its real estate sector has shown signs of weakness, the recent opening on January 8th, following 1,016 days of zero-Covid policy, could boost demand and economic activity.

A Long Way to Go

The IMF has stated that 2023 will feel like a recession for much of the global economy. But whether it is headed for a recovery or a sharper decline remains unknown.

Today, two factors propping up the global economy are lower-than-expected energy prices and resilient private sector balance sheets. European natural gas prices have sunk to levels seen before the war in Ukraine. During the height of energy shocks, firms showed a notable ability to withstand astronomical energy prices squeezing their finances. They are also sitting on significant cash reserves.

On the other hand, inflation is far from over. To counter this effect, many central banks will have to use measures to rein in prices. This may in turn have a dampening effect on economic growth and financial markets, with unknown consequences.

As economic data continues to be released over the year, there may be a divergence between consumer sentiment and whether things are actually changing in the economy. Where the economy is heading in 2023 will be anyone’s guess.

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Markets in a Minute

Chart: The State of U.S. Retirement Assets in 2022

U.S. retirement assets have faced challenging conditions amid market headwinds—but over the last decade these assets have nearly doubled.

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U.S. Retirement Assets in 2022

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Chart: The State of U.S. Retirement Assets in 2022

Today, many people are questioning the effects of high inflation on their retirement assets.

This Markets in a Minute from New York Life Investments charts the state of U.S. retirement assets to show how Americans are building their retirement savings, and where these assets are being drawn from.

U.S. Retirement Assets: Where it Stands Today

As of 2022, there was over $33 trillion being held in U.S. retirement assets.

For perspective, that’s about 31% of all household financial assets in America and nearly double the amount seen a decade ago. In the table below, we show how this breaks down by retirement asset type, using data from the Investment Company Institute:

Type of Retirement Asset2022*2012200219921982
IRAs$11.7T$5.8T$2.5T$872B$67B
DC Plans$9.3T$5.2T$2.6T$1.1T$264B
State and Local Government DB Plans$5.1T$3.2T$2.1T$958B$260B
Private-Sector DB Plans$3.2T$2.7T$1.7T$1.1T$479B
Federal DB Plans$2.2T$1.3T$800B$411B$99B
Annuities$2.2T$1.7T$899B$473B$180B
Total $33.7T$19.9T$10.5T$5.0T$1.3T

*As of Q2 2022.

As seen above, individual retirement accounts (IRAs) hold the most retirement assets, at 34% of the total. Since 2012, they have doubled, jumping from $5.8 trillion to $11.7 trillion in 2022.

Today, about 37% of Americans hold an IRA.

With $9.3 trillion in assets, defined contribution (DC) plans are the second-greatest source of savings. These type of plans have the employee make contributions that are automatically deducted from their paycheck. Here, employers have the option to make contributions. Like IRAs, they have grown considerably in the last 10 years.

Defined benefit (DB) plans, meanwhile, have declined in usage, especially in the private sector. In 1982, private-sector DB plans made up almost 40% of U.S. retirement assets. In 2022, they accounted for under 10% of these assets.

Overall, retirement assets have declined in 2022 due to weak market performance—after a record year in 2021 driven by higher contributions, a strong market, and other factors.

U.S. Financial Security in 2022

With these factors at play, how are Americans feeling about their financial security, and how is this impacting their retirement outlook?

In one Ipsos survey, just 56% of Americans surveyed said they felt good about their overall level of financial security.

When it comes to their long-term outlook, chief among concerns is inflation. Over half surveyed said that it will likely have a big impact on their ability to save for retirement and meet other long-term financial goals. Rising interest rates and medical costs are other areas of concern, with about one-third saying they will have a large impact on achieving these outcomes.

Meanwhile, 59% of Americans said they feel confident they have enough savings to enjoy a comfortable retirement. Of these, Baby Boomers feel most confident at 70%, while Gen Z (48%) feels least confident.

The good news is that inflation looks to have hit its peak in the summer of 2022. Still, reaching a 2-3% target may take a longer period of time. With this in mind, looking to investment strategies that include floating-rate bonds and real estate, infrastructure, and value equities may help insulate retirement assets from market fluctations and inflation.

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