Revisiting Stock Market Performance during Election Years

Revisiting Stock Market Performance during Election Years

April 16, 2024

I recently had a conversation with a client about stock market performance during election years. He was worried that, because of uncertainty with the upcoming election, his account could easily see a significant decline this year. If you have been a reader of this blog for at least 6 months now you will remember that I wrote on this topic as recently as last November. I thought it might be good idea to revisit the topic considering many of you might be having the same worries. It is true that general election years have generally yielded lower returns in the stock market. The S&P averages growth of around 6-7% in presidential election years versus around 10% in non-election years2. While this is a decrease in overall gains, the stock market still averages moderate gains. There are however some stats and trends specific to this year, 2024, that are worth noting when setting your expectations for the market this year

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Before I go any further, it is important to note that I will be presenting historical data merely as a reference point. No past results guarantee future results nor do they rule out others. I use this information to hopefully dispel some myths about how the markets have historically performed in the past.


While the stock market has historically underperformed slightly in presidential election years as a whole, the same cannot be said in re-election years specifically. In re-election years, a president entering the 4th year of his first term seeking re-election, the S&P has averaged 12.2% since 1952. We are in a re-election year in which President Joe Biden is seeking re-election for a second term in the White House. That 12.2% return is independent of whether the incumbent wins re-election or not. The dataset is all re-election years in that time period, successful or not. It may be possible that the mystique around the uncertainty of the White House changing hands may be overblown. We have already seen good performance in the markets to start this first quarter plus of the year. As of the time of writing, the S&P has YTD returns of 6.62%. The stock market also has not seen a year of decline in re-election years since 1952.


We talked about the average gain in all election years as being 6-7%, but lets look at the last 5 election years, 20 year range in total, to see what the trend has been. In 2020 the S&P gained 16.26%. The market outperformed the average performance for election years and more specifically re-election years as well. 2020 was a re-election year for President Donald Trump. The S&P gained 9.54% in the year of the election of 2016 vs. 13.41% in 2012. 2016 outperformed the average election year, but did not perform as well as in 2012 which was a re-election year as well for President Barack Obama. 2008 was one of the worst stock market years on record and was the beginning of the Great Recession in the country. The S&P had a loss of 38.49% that year. It is hard to imagine the chaos that would ensue if the markets had that bad of a year again. In '04 the S&P gained 8.99% which slightly underperforms historical re-election year performance1.


With the exception of 2008, the idea that the uncertainty of the presidential election will cause extreme stock market turmoil has not rang true the last 20 years. The extreme underperformance of 2008 had much more to do with the financial crisis than it did with the impending election. Although, it is hard to say that cratering of the stock market didn't significantly impact the results of the 2008 election. In any case, historical data shows that the markets generally do not get sucked in to the politics of elections. Markets don't always perform as well as usual, but the data doesn't point to you needing to anticipate large losses in your account simply on the basis of the vote this November. This of course does not and cannot rule out bad market performance this year as that is sadly not something we can ever do.
Hopefully this blog was helpful and interesting to read! No man or woman knows what will happen in any given election year, but I am thankful to know who is in control no matter who is elected. Thanks for reading and have a great rest of your week!

 

1 https://www.macrotrends.net/2526/sp-500-historical-annual-returns
2 https://money.usnews.com/investing/articles/election-2024-how-stocks-perform-in-election-years
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