How Elections Can Affect the Stock Market

How Elections Can Affect the Stock Market

November 29, 2023

For those of you who have been clients of ours and/or have been reading our blog for some time, you may remember an entry I wrote last year titled, “How do the Midterms Affect the Stock Market?”1. At the time of the writing of that blog, our country was a mere 2 weeks away from the 2022 Midterm elections. I wanted to look from a historical perspective at how the stock market performed following Midterm elections compared to market performance leading up to the elections. Part of the desire in doing this analysis was the hope of finding some good news! 2022 was historically bad for the stock market and heading into this year I think we were all looking for some potential positive trends. Thankfully for us, historical data showed that this year had the potential to be a bounce back for our portfolios. Let’s revisit what history predicted would happen and compare it to what actually happened. Then, seeing as we are now entering into a presidential election year (!), we will look at what historical data would predict could happen in the stock market in 2024.

Last November’s midterms saw many changes brought to State governorships and to both chambers of congress as many House and Senate seats were up for grabs as well as 36 Governor seats2. The potential for political turmoil and overhaul would lead some to believe that stock market performance could continue to dwindle after the election and into 2023. What did history say? As I noted last year, in 17 out of the last 19 years after midterm elections the markets performed better in the 6 months following the election than they did in the 6 months preceding the election. This is regardless of which party wins the governorships and the House and Senate seats. History showed that some fresh change in leadership at the top could lead to and change in market direction. The question then is; was history proven to be correct?

The results are a bit mixed. When looking at the 3 major indices, the Nasdaq and the S&P 500 had negative returns of 4.1% and 0.77% respectively in the 6 months prior to the elections3. Conversely, the Dow Jones Industrial Average was up 4.8% in the 6 months leading up to the election. Following the Midterms, the Nasdaq and S&P had positive returns of 8.5% and 3.31%. The Dow however had a negative 1.3% return over the same time period. So, did historical trends continue? Mostly, yes. While the DJIA is a major index, it only tracks the stock prices of 30 major U.S. stocks. So, it’s lagging returns following the midterms may not be totally indicative of the market as a whole. The S&P tracks 500 U.S. stocks and is seen as a broader representation of how the U.S. stock market is performing. The S&P being up 3.31% probably shows that once again history repeated itself and the stock market performed better in the immediate aftermath of the midterms than it had immediately preceding them. Those positive returns have continued as well. We have had a nice bounce back year in the markets in 2023. We would all like for those gains to continue as we head into 2024 which is a presidential election year. We know what happens to the market in Midterm election years, but what about U.S. Presidential Election years.

The U.S. Presidential election is a very import moment for our country every 4 years. The result of the election when an incumbent is eligible is effectively either an approval by the people of the current president’s job or an indictment of the job they have done and a decision to move forward with someone else. The prospect at a change of leadership can cause turmoil and uncertainty for not only the stock market, but also for everyday citizens who may be anxious at the thought of their candidate not getting elected. How has this affected the stock market in the past? As always, it is good to add a disclaimer that the following historical data is provided to give you some knowledge to create informed expectations for 2024. Historical results do not in any way guarantee future results and should not be used as such in projecting future market returns. All that being said, over the past 90 years the stock and bond markets have had below average returns in the year leading up to presidential elections4. This underperformance has been slight, but it is worth watching. Stocks average about 6% these years when they normally average closer to 10% on a yearly basis. Does this guarantee a bad year for your portfolio? No, it does not. Does this mean you should taper your expectations for your money next year? That’s up to you. Again, these changes in the market are short-term. Volatility is the price of riding the stock market rollercoaster, but if you are a long-term investor with a long investment time horizon you don’t need to be focused on short-term hills and valleys. We shall see if history repeats itself again this time around.


Have a great week!


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.