Market Returns during Presidential Election Years

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If it’s Leap Year, it’s a Presidential Election Year—and that’s true of 2024. Get ready for the onslaught of radio and tv ads, as well as red, white, and blue yard signs and direct mail pieces. The Republicans have been active for months now, vying for the nomination during the upcoming spring primaries and caucuses, while President Biden waits to see who he’ll be running against.

There’s a longstanding adage that stock market returns are positive during presidential election years, sometimes referred to as the “election year effect” or “presidential election cycle theory,” but is there truth to that? Let’s look at S&P 500 Index performance to find out.[1]

There have been 23 presidential elections since the S&P 500 Index began. The average return when a Republican was elected was 15.3% versus 7.6% when a Democrat was elected. During all presidential election years, the average return was 11.28%.

In these election years, 19 of the 23 years (83%) provided positive performance. The greatest gain (43.6%) was in 1928 when President Hoover was elected, followed by 33.9% when President Roosevelt was elected in 1936 and 32.4% when President Reagan was elected in 1980.

The greatest loss (-37.0%) was in 2008 when President Obama was elected, followed by -9.8% when President Roosevelt was elected in 1940 and -9.1% when President Bush was elected in 2000.

When a Democrat was in office and a Democrat was elected, the total return for the year averaged 11.0%. When a Democrat was in office and a Republican was elected, the total return for the year averaged 12.9%.

There are many factors that impact stock market returns, and historical patterns may offer some insights. However, it is important to note that past performance is not indicative of future results.

Uncertainty and Volatility: Presidential election years often bring increased uncertainty, as markets react to potential policy changes and the uncertainty surrounding the outcome of the election. This can lead to higher volatility in the months leading up to the election.

Policy Impact: Markets may react to anticipated policy changes based on the candidates’ platforms. For example, sectors such as healthcare, energy, and financials might experience more significant price swings if there are proposed policy changes affecting these industries.

Investor Sentiment: Investor sentiment can play a crucial role in market movements during election years. Positive or negative sentiment regarding a particular candidate’s economic policies can influence buying and selling decisions.

Interest Rates: The Federal Reserve’s monetary policy, including decisions on interest rates, can impact market performance. During election years, the central bank may adjust policies in response to economic conditions, and this can influence market behavior.

Global Events: Market activity during election years can also be influenced by global events, economic conditions, and geopolitical developments. These factors may overshadow the impact of the election itself.

It’s important to emphasize that while historical patterns and general trends can provide some context, the market is highly dynamic and influenced by a multitude of factors. Investors should carefully consider their individual financial goals, risk tolerance, and investment horizon rather than making decisions solely based on election year patterns. The “election year effect” or “presidential election cycle theory” is a broad generalization and may not hold true in every election cycle. Let’s see what happens in 2024.

[1] Morningstar/Ibbotson Associates
*Standard & Poor’s is a corporation that rates stocks and corporate and municipal bonds according to risk profiles. The S&P 500 is an index of 500 major, large-cap U.S. corporations. You cannot invest directly in an index. 
*Investments are subject to market risks including the potential loss of principal invested.

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