Election Year Investing: What Investors Need to Know for 2024

Image of Partner, Financial Advisor, and Director of Investments, Mattew Finley, with Market Updates on investing during an election year! From the desk of Matthew Finley, CFP® text to highlight the blog post.

Here we are again for everyone’s favorite time, an election year! With the added caveat of 2024 not only an election year, but a Presidential election year. During times of election year investing, we often must take off our financial advisor hats and become counselors and psychologists. We become sounding boards for our clients to voice their concerns or hopes. As we are nearing the true election cycle, the rhetoric and fear will begin to spike until November 5th is over. I write this to provide some facts about the fear many have and to hopefully reduce some stress. It is our job to guide your investments through uncertain times, including election years. We make unemotional decisions based on the facts we know and the history to guide us.

Investing During an Election Year

Let’s take a look at some history to see what we can learn from the past for investing during an election year. First and most fun, stocks have been up in an election year of a 1st term president 100% of the time since 1952 (Eisenhower). Now as financial planners we live in a probability of success world, but 100% is pretty good. That is followed at 90.9% positive with a 20.5% average return in the year preceding an election. As shown in the chart below from Carson Research and FactSet, election year returns have averaged 12.2% since 1952. On average, two-thirds of the election year returns happen from August until the end of the year. Further, a little over half of the annual return occurring post-election day.

In the past 95 years of S&P 500 returns, election years have averaged 7.5% return while nonelection years averaged 8%. Slightly weaker, but overall inconsequential. As of this writing, the S&P is up 11.1% on the year.

Where will it end?

Great question, but economic data and historical election year data points us to a little more upside for 2024 ahead.

One key element we often talk about is uncertainty and the effects it can have on the market. Election cycles lead the way for uncertainty every four years, with the mid-terms in between to a lesser extent. During this uncertainty the markets will often tread sideways while sometimes giving up returns. So, while the S&P is up 11.1% year to date, it would not only be normal, but expected for some returns to give way into the early summer months.

As we near the election, uncertainty often fades as a favorite begins to emerge. With the market being efficient at predicting ahead, it will begin to adjust for the expected conditions. Once confirmed, it moves right along regardless of the candidate. The chart below shows this well with only two presidential elections since 1884 having lower returns from election day out a year.

What happens to stocks after an election?

Post-election year investing matters more to us as financial advisors. That is when we alter strategies to align with where the economy will grow as a result of the election. The chart above shows market returns twelve months post-election since 1984. All but one was positive over that time frame. While the chart below shows the one term (four years) return of every president since 1929. Without parsing the circumstances of each, only three had a negative four-year cycle. That is a whopping 77% success rate when we look at probabilities.

Again, these are great odds in the financial planning world when looking at potential outcomes. If we look at presidents who have had two or more (FDR) full terms, only one had a negative eight-year return out of six total multi-term presidents. Since either possible candidate in 2024 will be second term presidents, the historical probabilities point to higher in four years.

Regardless of the outcome of the November election and the emotions regarding the results, one thing remains true. We live in a growing economy and therefore growing markets over time. As investors we want to ignore the noise that creates volatility in the marketplace and listen to the factual data that truly impacts prices reflected in portfolios. Regardless of who or what party is elected, good markets and bad markets occur. Our job is to read as much ahead as possible and take advantage of either scenario.

In the end economics dictate the best investment decisions such as earnings growth, gross domestic product, inflation, and interest rates. So, while the elections are certain to create market volatility ahead. The current inflation and Federal Reserve interest rate policies have a much larger impact in the coming market returns to end 2024 and into 2025 and beyond.


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