Fisher Investments Reviews What The 2024 Presidential Election Means for Stocks

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 discussed, 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

While averages indicate election year stock returns are back-end loaded (gold line), a few big first-half declines under Republican presidents (red line) skew the overall average down. Six of eight negative election year first halves 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. When a Democratic president is already in the White House (blue line), fourth-year returns have been more consistently positive with +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.

The Perverse Inverse

Some might think the preceding chart suggests Democratic presidents are inherently better for stocks, but it’s important to remember the market looks forward and pre-prices likely outcomes. The following chart shows stock returns across both the election year and the subsequent inaugural year. However, this chart switches the viewpoint from who the sitting president is to who is elected.

Typically, election year returns are stronger when Republican presidents are elected than when Democrats are (left columns)—consistent with the (misguided, in our view) perception that Republicans are more business-friendly. Interestingly, the opposite typically holds true in inaugural years (middle columns) when investors realize neither candidate has as much impact as hoped, or feared. When election and inaugural year returns are measured together (right columns), the result tends to be nicely positive for both parties.

*Source: Global Financial Data. Annual S&P 500 total returns, 12/31/1923 – 12/31/2023.

Chart source: Global Financial Data, as of 12/27/2023. S&P 500 Price Index, 12/31/1930 – 12/31/2020.

Notably, bigger swings between election and inaugural year returns appear concentrated in instances involving newly elected Republicans or Democrats—an improbable scenario this year. As it stands today, November’s contest likely pits President Biden against former President Trump, who would both represent re-elected presidents. While a contest between a former president and an incumbent president is nearly unprecedented**, Biden and Trump are very well-known and familiar to stocks—reducing the likelihood of major surprises unless either isn’t their party’s nominee. Presuming both make the final cut, this likely helps markets price either outcome and quickly move on.

Want to Dig Deeper?

In this article, we discussed how US presidential elections years can impact stocks. For more insights on why politics should be a tailwind for stocks in 2024, you can watch our recent video, “Fisher Investments Reviews the Impact From Global Elections in 2024.”

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.

**Former President Grover Cleveland defeated incumbent President Benjamin Harrison in 1892—prior to the start of reliable market data.

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.