Skip to main content

Presidential election years like 2024 are usually winners for U.S. stocks

by Matt Sommers, posted by Morningstar

Investors shouldn't be overly concerned about politics affecting their portfolio.

As the 2024 U.S. presidential election approaches, many investors are worried about the impact that politics might have on their portfolios. While this concern is likely driven by the avalanche of headlines generated around both the 2024 and 2020 elections, a review of past election cycles going back to 1937 suggests that the upcoming election shouldn't be a cause for concern.

According to a recent survey of 1,000 investors with at least $250,000 in investable assets conducted by Janus Henderson Investors, more investors say they are very concerned about the impact the 2024 presidential election will have on their portfolios (49%) than are very concerned about the impact of inflation (35%), recession (29%), or higher interest rates (27%).

Notably, older investors showed more widespread concern than their younger counterparts, as nearly 7-in-10 (69%) members of the Silent generation (ages 78+) said they were "very concerned" about the 2024 U.S presidential election compared to just 37% of Millennials (ages 27-42).

There are several possibilities for why concern is more common among older generations. They may be following political developments more closely or have a more immediate focus on how short-term volatility in the market could impact their retirement savings. It's also possible they could be worried about potential policy changes that might affect Social Security or healthcare. Whereas younger investors may be placing a greater importance on priorities such as career growth and managing debt, which are less likely to be impacted by politics.

Elections are not synonymous with market selloffs.

Amid this heightened concern, investors would be well-served by looking back at historical market returns around past presidential elections. This may help them avoid short-term portfolio decisions that could adversely impact their long-term planning and performance. The data offers a window into the market's reaction to periods of political change and provides a broader perspective on patterns and trends that may emerge in 2024.

The research also reveals that those who are most pessimistic about the economy are also most worried about the election. "Pessimistic" respondents included those who think stocks are headed lower, those who believe it is currently the most challenging time to invest, and those whose returns are not keeping up with cost-of-living increases.

While investors appear to believe that stock market performance is negatively impacted by presidential elections, historical data suggests that elections are not synonymous with market selloffs. A deeper look at the historical trends of the S&P 500 SPX during election cycles demonstrates instances where markets have not only weathered political transitions but have shown resilience and provided favorable returns despite the uncertainty. Looking back at the performance of the S&P 500 from 1937 to 2022, for example, shows that the average annual return is 9.9% during presidential election years and at 12.5% during non-election years.

Additionally, our research surrounding the market's performance based on political-party control shows that even during periods of a divided Congress, S&P 500 returns did not experience significant fluctuations.

When looking at S&P 500 performance in times of a divided government, the average annual return stood at 15.9% under a Democratic president and 9.4% under a Republican one. Comparatively, for periods of unified government, the average annual return was 11.5% under a Democratic administration and 16.1% under the Republicans. Although returns displayed more variability, these discoveries illustrate that market performance isn't consistently dictated solely by political party affiliations or a divided government in a predictable, linear manner.

Importantly, in past election years the S&P 500 has seen more positive performance than negative, showing that the relationship between political events and stock market movements is more complex than just a cause-and-effect scenario.

U.S. stock market returns have been positive, on average, for all four quarters of the final year of a presidential administration.

From a more tactical perspective, U.S. stock market returns have been positive, on average, for all four quarters of the final year of a presidential administration. While average returns were somewhat lower during the first quarter, this was largely driven by the COVID-19 pandemic impact in early 2020.

Only including divided government years with a Democratic president, which will be the case in 2024, first-quarter returns have historically been the strongest of the year. Elections and political events are significant factors, but they're only pieces of the broader puzzle shaping market behavior, and attempting to time markets is rarely fruitful.

Presidential election years should not create emotional or rushed decision-making. It is important to keep in mind that many other variables could affect portfolios in 2024, and different sectors, such as healthcare or technology, may react to election results or policy changes more than others. Investors can look at historical market data to understand the importance of a comprehensive investment strategy that transcends election-related concerns and aligns more closely on broader economic variables, so that they can approach 2024 with a sense of readiness. With a well-diversified portfolio, any short-term market reactions or fluctuations can be navigated with confidence.

Matt Sommer is head of the specialist consulting group at Janus Henderson Investors

More: How watching the Republican debates can make you a better investor

Also read: How could a politician engage in large-scale deception and win? Easy. Just ask George Santos.

-Matt Sommer

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.


 

(END) Dow Jones Newswires

12-13-23 1409ET

Copyright (c) 2023 Dow Jones & Company, Inc.

Original Post: https://www.morningstar.com/news/marketwatch/20231213418/presidential-election-years-like-2024-are-usually-winners-for-us-stocks