Navigating the Waves of Election Year Markets

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2024 – Election Year Worries

We get many calls from clients wanting to talk about the stock or bond markets and the economy in general. We are fine getting those calls and having those conversations. Of course, we can’t predict the future, but we try to read the tea leaves to better understand what might happen. It’s far from an exact science. However, this year, 2024, adds an additional component that many clients bring up to discuss.

The election. Yes, the U.S. has its Presidential election in November, and given the high level of political sensitivity we have, it creates very strong feelings for many clients. Many people assume that the stock market will react in a strong way to the election results. Often, many feel if their favored candidate gets elected it will lead to a stock market boom, or at least a steady market. And if the non-favored candidate is elected, it will mean a stock market crash of some sort. We generally feel this view of the markets is incorrect.

It is true that election years often have a somewhat higher level of overall volatility. This means more days with higher than normal changes in stock market value, both up and down. This volatility is most often related to how the candidates appear to progress toward the election. Who is up and who is down on any given day. The greater the uncertainty of the election result, the greater the level of added volatility. So, in a year with a difficult to predict election result, such as in 2024, we expect to see more volatility. But that volatility typically ends once the election is over. The stock market is smart enough to know that whoever gets elected, very little will change in the government, and short-term, or any immediate change, is very rare. Some investors may make trades based on the election result, but it generally doesn’t move the market very much. Once the election is over, volatility usually drops, and we are back to normal.

A Historical Perspective

To better understand what we are explaining, consider that the S&P 500, our preferred reference stock index, has had an average annual return of +10.26% from its start in 1957 to December 31, 2023. If we adjust our view to one that is more political, we can look at 10-year returns as associated with either Republican or Democrat dominant Presidencies. Going back to the 1930s, the average 10-year return during times when Democrats dominated the White House stands at 11.2%, just above the long-term average annual return. The 10-year returns for a Republican dominated White House is 10.5%, again just slightly higher than the long-term trend. The difference between the two-party dominance is less than +1%. They are very close and a good indicator that elections just don’t matter that much to the stock market. To be fair, we should point out that this is an imperfect comparison because rarely does one party dominate the White House for a full 10 years straight. And it is important to remember that there are many things that affect stock market returns besides who is in the White House.

S&P 500 index returns exclude reinvested dividends (Sources)
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

The overall economy, technology development and implementation, global coordination and wars all play a role in stock market performance. But still, knowing these other things are important is useful in understanding why the party in the White House is not that critical. Our guess is that after November 2024 nothing major will change and markets will settle into whatever the underlying economy and corporate earnings trends seem apparent. There will be some bumps leading up to the election, but nothing much after, at least as far as politics is concerned.

Jim Thibault
Managing Partner

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