Fisher Investments Reviews What a Presidential Election Year Means for Stocks

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By Fisher Investments — 1/16/2024

Among a myriad of other factors, politics will likely be at the forefront of many investors’ minds as the 2024 US elections approach. Political developments undoubtedly can influence markets, but often not in the way many investors think. Heated rhetoric and hardened opinions of the potential—if unlikely—presidential candidates could certainly swing sentiment and spark volatility. But despite partisan rancor, as Fisher Investments founder, Executive Chairman and Co-Chief Investment Officer, Ken Fisher, shared in his New York Post article “Why 2024 will be good—and possibly great—for investors,” the fourth year of a presidential term has been a historically strong year for stocks. In this article, we’ll take a closer look into how election years can affect stocks and what investors might expect in 2024.

US Stock Returns and Presidents

In our experience, during US presidential election season, many investors fall into the trap of believing stocks have a better chance if their preferred party or candidate wins. However, as we’ve previously shown, market data show that neither party is inherently better (or worse) for stocks. Over the long-term, stocks have risen regardless of which party controls the presidency. From January 1925 through December 2023, US stocks’ average annualized return has been 15.4% under Democratic presidents and 9.0% under Republican presidents—nicely positive for both.* The difference between these average returns appears largely due to economic and market factors outside any president’s control.

Source: Global Financial Data as of 12/27/2023. Annualized monthly S&P 500 Total Return from 12/31/1924 – 12/26/2023. Chart source: Global Financial Data, as of 12/27/2023. Growth of $1 invested in the S&P 500 Total Return Index on 12/31/1924. Data is monthly from 12/31/1924 – 12/31/1987 and daily from 1/1/1988 – 12/26/2023.

US Stock Returns within Presidential Terms

Many investors fear presidential election years are always bad for stocks, but history doesn’t support this conclusion. Election years are positive over 80% of the time with 11.4% average returns—the second-best year out of the four-year cycle.

Source: Global Financial Data, as of 1/2/2024. The S&P 500 Total Return Index is based upon GFD calculations of total returns before 1971. These are estimates by GFD to calculate the values of the S&P Composite before 1971 and are not official values. GFD used data from the Cowles Commission and from S&P itself to calculate total returns for the S&P Composite using the S&P Composite Price Index and dividend yields through 1970, official monthly numbers from 1971 to 1987 and official daily data from 1988 on.

Moreover, when stocks are negative in a president’s second year—like 2022 was—they have risen in the ensuing fourth year every time since 1932. Many of these negative second years involved bear markets, with the subsequent bulls helping drive positive returns in the following fourth years.

Historical Election Year Stock Returns

Election years tend to have more muted returns in the first half of the year and stronger returns in the second half. In our view, this illustrates how falling uncertainty usually provides a tailwind for stocks as the year progresses. Dramatic campaign rhetoric can dominate early in an election year, weighing on sentiment. Then, as Election Day nears, the candidates’ policy stances and likelihood of enacting big legislation becomes clearer—all helping reduce uncertainty.

Not that 2024 will be a late-year party only. While averages say election years are back-end loaded, a few big first-half declines under Republican presidents (red line) skew the overall average down (gold line). Six of eight negative election years were under Republican presidents. Five of those occurred during or just after recessions—a recipe for a party switch.

Investors have long (and wrongly, in our view) cast Republicans as pro-business and Democrats as anti-business. Hence, a looming flip from Republican to Democrat sparks fears of less market-friendly policy. But 2024 features an incumbent Democrat, which either extends the status quo or tees up a transition to an administration perceived as pro-business. Under Democratic presidents (blue line), fourth-year returns have been more regularly positive at +6.4% in the first half and +7.1% in the second half.*

Source: Global Financial Data and FactSet, as of 12/13/2023. S&P 500 total return in first and second half of presidential fourth years. Chart source: Global Financial Data, as of 12/27/2023. S&P 500 Price Index, 12/31/1930 – 12/31/2020.

Some might think this chart suggests Democratic presidents are inherently better for stocks, but it’s important to remember this is only looking at one year within a presidential term. As we have demonstrated, across broader market history, US stocks have risen (and fallen) when either party controls the White House. Overly focusing on political party or individual presidents can distract investors from the underlying reality that US election years are much more often positive than not—a costly trend to miss, in our view.

Want to Dig Deeper?

In this article, we discussed how US presidential election years can impact stocks. For more insight on why politics should be a tailwind for stocks in 2024, you can watch Ken Fisher’s recent video, “Fisher Investments Reviews What a US Election Year Means for Stocks.”

For a closer look at 2024 elections outside the US and how they might extend bullish, global gridlock, you can also read Fisher Investments’ recent MarketMinder article, “The Year Ahead in Elections Outside America.”

For more market insights from Fisher Investments, read our latest articles.

Investing in securities involves a risk of loss. Past performance is never a guarantee of future returns. The results for individual portfolios and for different periods may vary depending on market conditions and the composition of the portfolio. Investing in foreign stock markets involves additional risks, such as the risk of currency fluctuations. The foregoing constitutes the general views of Fisher Investments and should not be regarded as personalized investment advice. Nothing herein is intended to be a recommendation. The opinions expressed are subject to change without notice.

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