Election year stock market returns are on everyone’s mind. The year 2024 is an election year in the United States, and with it comes the usual whispers of uncertainty and potential market volatility.
Investors often worry about how elections might impact their portfolios, leading to questions like: Do stocks perform worse in election years? Does it matter who wins? With the much anticipated Trump/Biden rematch on the horizon, there will undoubtedly be much speculation leading up to this November and beyond.
This article delves into the historical data of election year stock market returns, providing insights to help investors navigate the upcoming election with a clearer perspective.
Election Year Stock Market Returns – Past Performance: A Statistical Look
Let’s start by examining historical trends. Here’s a breakdown of the S&P 500’s performance in election years compared to non-election years:
- Presidential Election Years (Since 1928):
- Average Annual Return: 7.5%
- Positive Return Years: 63%
- Negative Return Years: 37%
- Non-Election Years (Since 1928):
- Average Annual Return: 8.0%
- Positive Return Years: 73%
- Negative Return Years: 27%
As you can see, while the average return is slightly lower in election years, the difference is minimal. Interestingly, election years have experienced a higher percentage of negative returns. However, it’s important to consider that a single bad year can significantly skew the average.
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S&P 500 Average Annual Return (Election vs. Non-Election Years)
Drilling Deeper: Re-election vs. New President
The data suggests a potential difference between presidential re-election years and years with a new president. Here’s a closer look:
- Presidential Re-Election Years (Since 1952):
- Average Annual Return: 12.2%
- Positive Return Years: 88%
- Negative Return Years: 12%
- New President Years (Since 1952):
- Average Annual Return: 6.8%
- Positive Return Years: 59%
- Negative Return Years: 41%
This data suggests a more positive outlook for the stock market in re-election years compared to those with a new president. Historically, re-election years have seen significantly higher average returns and a much lower chance of negative performance.
S&P 500 Performance in Re-Election vs. New President Years
Keep in mind that Donald Trump is not a “new” President. It is extremely un-common for a President to serve non-consecutive terms. In fact, Grover Cleveland is the only president in U.S. history to serve two non-consecutive terms, as the 22nd and 24th president, from 1885 to 1889 and from 1893 to 1897.
Beyond Averages: Volatility and Investor Sentiment
While averages paint a broad picture, it’s crucial to remember that election years often experience higher volatility. This means the market might fluctuate more significantly, with periods of both sharper gains and steeper losses. Investor sentiment also plays a role. Uncertainty surrounding the election outcome can lead to increased short-term volatility, even if the long-term impact is minimal.
Midterm Elections: A Different Story
The discussion so far has focused on presidential elections. Midterm elections, held in between presidential elections, tend to have a less pronounced impact on the stock market. Historically, the S&P 500 has performed well in the year following midterm elections, regardless of which party gains control of Congress.
Remember: Elections are Just One Factor
The stock market is influenced by a multitude of factors, including economic conditions, interest rates, corporate earnings, and global events. While elections can contribute to short-term volatility, their long-term impact is often debatable. Here are some additional factors to consider:
- Policy Proposals: The policy stances of the candidates can influence certain sectors of the market. For example, a candidate favoring environmental regulations might boost renewable energy stocks.
- Global Markets: The performance of the US stock market is also influenced by global economic conditions and investor sentiment worldwide.
Investing Strategies for Election Years
Here are some tips to help boost your election year stock market returns:
Maintain a Long-Term Focus: Don’t let short-term election noise cloud your long-term investment goals. Elections come and go, but a well-diversified portfolio built for your specific timeline is crucial for sustainable growth.
Diversification is Key: Spread your investments across different asset classes, such as stocks, bonds, and real estate. This helps mitigate risk, as different asset classes tend to react differently to market events, including elections.
Rebalance Your Portfolio: Regularly rebalance your portfolio to ensure it aligns with your risk tolerance and investment goals. Election years might necessitate adjustments depending on market volatility.
Be Wary of Market Timing: Trying to time the market based on election outcomes is a risky proposition. It’s often difficult to predict how the market will react, and missing out on even a few good days can significantly impact your returns.
Focus on Fundamentals: Instead of getting caught up in election hype, focus on the fundamentals of the companies you invest in. Analyze their financials, growth potential, and competitive landscape.
Stay Informed, But Don’t Overreact: Stay informed about the election and potential policy changes, but don’t let every headline trigger impulsive investment decisions. A measured approach based on research and your investment plan will serve you better.
Election Year Stock Market Returns – Conclusion
The 2024 election will undoubtedly generate discussion and speculation about its impact on the stock market. However, historical data suggests that elections have a minimal long-term effect on overall market performance. By focusing on long-term goals, maintaining a diversified portfolio, and staying informed without overreacting, investors can navigate the upcoming election year with a sense of confidence and a clear investment strategy.
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