The 2024 presidential election may be one of the biggest market-moving catalysts in the next several months. It’s too early to speculate about a potential winner, but investors have gotten more clarity about the candidates and their platforms in the past several months. Vice President Kamala Harris and former President Donald Trump are neck and neck in the latest national polls. However, Trump has a history of outperforming poll numbers, and a lot could still change between now and Nov. 5.
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The remainder of the year will bring several challenges for investors and politicians alike. Unfortunately, the S&P 500’s past performance during U.S. presidential election years suggests investors could experience some elevated volatility and lackluster returns between now and the end of the year.
— S&P 500 performance in election years.
— 2024 election cycle chaos.
— Economic performance under Biden versus Trump.
— 2024 investing strategy.
S&P 500 Performance in Election Years
The S&P 500 has averaged a 7% gain during U.S. presidential election years since 1952. While a 7% gain is far from disastrous, it is also well short of the 17% average S&P 500 gain in the year prior to an election year. It’s also below the roughly 10% average annual total return for the S&P 500 in the typical year. Of course, it’s important for investors to remember that past performance does not guarantee future returns, and there have only been 18 presidential elections since 1952.
Historically, stock market performance in the months leading up to the election has been a fairly accurate predictor of the U.S. election outcome. Since 1984, every time the S&P 500 has generated a positive return from the beginning of August through the end of October in a U.S. presidential election year, the incumbent party won the election. Each time that three-month return has been negative, the incumbent party lost.
From Aug. 1 to Oct. 21, the S&P 500 is up 7.5%, which would seemingly be good news for the Harris campaign.
Of course, there’s no direct connection between the stock market and the election, but there are potential explanations for this historical pattern. Changes in the White House create uncertainty in the markets, and uncertainty is generally bearish. Some view the S&P 500 as a broad reflection of U.S. economic sentiment: When voters are moved to vote out the incumbent administration, it’s often because they are dissatisfied with the state of the economy.
2024 Election Cycle Chaos
As if a typical election year weren’t volatile and unpredictable enough for investors, this year’s election cycle has featured two unique developments. On July 13, Trump narrowly survived an assassination attempt in Butler, Pennsylvania. Less than two weeks later, President Joe Biden announced he would not seek re-election, opening the door for Harris to take over as the nominee. On Sept. 15, another assassination attempt unfolded, this time at Trump’s own golf course in Florida.
A sitting president not seeking re-election and two assassination attempts on a major party nominee in the same year may seem unprecedented. But in reality, Americans experienced similar circumstances back in 1968. In March of that year, sitting Democratic President Lyndon Johnson opted not to seek re-election due to low favorability ratings. Incredibly, presumptive Democratic nominee Robert F. Kennedy was assassinated less than three months later.
What can 1968 tell investors about 2024? Surprisingly, the S&P 500 took all the political chaos of 1968 mostly in stride. The index rallied 15% during the period between Johnson’s announcement through the end of the year, which concluded with the election of Republican Richard Nixon. At the end of 1968, the S&P 500 had gained 7.7% for the year and generated a total return of 11%, slightly above average for the index.
Economic Performance Under Biden vs. Trump
Given the two leading candidates in the 2024 election both have experience in the White House, investors can also take a look at how the stock market has performed during Trump’s four years as president and Harris’ three-plus years as vice president.
During Trump’s presidency, the S&P 500 gained about 65% overall. As of Oct. 21, the S&P 500 is up about 54% under Biden and Harris.
One of the major reasons market returns have been more muted under Biden and Harris is inflation. Under Trump, cumulative inflation based on the consumer price index (CPI) was 7.8%. Under Biden, cumulative CPI inflation has been nearly 20% through September of this year.
It’s easy to give Biden, Harris and Trump credit or blame for stock market performance during their respective administrations, but the COVID-19 pandemic dealt extreme disruptions to the economy and the market in both 2020 under Trump and 2021 under Biden. These disruptions severely muddied the waters when it comes to economic and market performance data. For example, the U.S. economy averaged just 1.4% annualized GDP growth under Trump compared to 3.5% during the first three years of Biden’s administration. However, those numbers are both skewed by the outlier 2.8% GDP drop during the pandemic-related economic shutdowns in 2020.
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The caveats surrounding credit and blame for economic performance are taken one step further when it comes to Harris. Her economic policy platform is closer to Biden’s than Trump’s. But as vice president, Harris likely hasn’t been directly responsible for many of the economic policy decisions during Biden’s administration.
In general, a Harris victory would likely benefit industries such as electric vehicles, renewable energy, homebuilders and cannabis. Experts see a Trump victory as good news for the oil and gas, cryptocurrency, defense and firearm industries.
The biggest risk to a Harris victory in November for investors may be the possibility of higher corporate tax rates. The primary risk of a Trump victory may be his plan to implement aggressive tariffs on imports.
2024 Investing Strategy
The remainder of this election year may be unpredictable and volatile. Fortunately for investors, analysts are generally optimistic about the outlook for stock prices.
The consensus analyst target for the S&P 500 is currently 6,377 over the next 12 months, according to FactSet, which represents roughly 8.9% upside from its Oct. 21 closing value. On a sector basis, analysts see the most valuation upside for the communication services (14.1%) and energy (12.3%) sectors and the least amount of upside for the utilities (3.6%) and industrials (4.2%) sectors.
In a recent report, LPL Financial Portfolio Strategist George Smith said the stock market tends to perform poorly in the third quarter of an election year before finishing off the year strong.
“Good news for stock investors is the final quarter of the presidential election cycle has one of the highest proportions of positive returns (83.3%) even if the average returns are more middle of the road (+2.5%),” Smith said.
“Markets generally react positively to the degree of uncertainty that is removed following the presidential election result, even if the full details of policy in the years to come are still not fully defined.”
Glen Smith, CEO and chief investment officer at GDS Wealth Management, says investors can expect choppy economic data and elevated market volatility through the end of the year.
“The labor market data may become clouded over the next few reports by a perfect storm of factors, such as the port strike and the disruptions from Hurricane Helene,” Smith says.
“The stock market has been living up to October’s reputation of increased volatility, and we expect this choppiness to continue for the next few weeks as the market starts to navigate the uncertainty surrounding the election, the Federal Reserve’s next move and corporate earnings reports.”
For investors fretting about which candidate will win in November, history suggests that for certain scenarios it likely won’t matter much for the market.
Since 1933, the S&P 500 has averaged a 12.9% annual return when Republicans controlled both the White House and Congress and a 9% annual return when Democrats controlled both. When a Democrat was president and Republicans controlled Congress, that figure was 13%. For the opposite scenario, returns fell to 4.9%.
David Bahnsen, managing partner and chief investment officer at The Bahnsen Group, says the historically best-case scenario for stock price performance is when there is mixed control between the presidency and one or both houses of Congress, an outcome which appears highly likely in 2024.
“While there are a lot of emotional feelings and rhetoric about which presidential candidate would be better for stocks, the market’s average annual performance is actually about the same when a Republican is president and when a Democrat is president,” Bahnsen says.
He says it is nearly impossible to predict winning and losing stock market sectors based simply on which candidate wins the election.
“While we expect more favorable conditions for the financial sector under a Trump presidency than a Harris presidency, these favorable conditions are very marginal and may not be enough to move the investment needle,” Bahnsen says.
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Election 2024: How Stocks Perform in Election Years originally appeared on usnews.com
Update 10/22/24: This story was previously published at an earlier date and has been updated with new information.
