Personal Wealth Management / Expert Commentary

Fisher Investments Reviews What a US Presidential Election Year Means for Stocks

Fisher Investments’ founder, Executive Chairman and Co-Chief Investment Officer Ken Fisher discusses how the upcoming US presidential election can affect stocks. Ken says president’s fourth years—election years—tend to be positive, with the S&P 500 averaging returns averaging 11% since 1925.* Ken explains this historical trend has been particularly strong when election years are preceded by a decline in president’s second years, as we saw in 2022.

However, Ken says the election years can vary depending on which party holds the presidency. When there’s a Democrat incumbent, Ken notes markets steadily climb through the year. Conversely, returns are often back-end loaded with a sitting Republican. Ken acknowledges 2024’s race is somewhat unique given how well known the likely front runners are. But according to Ken, unless anything untoward happens to either candidate, he thinks stocks are likely to benefit from reduced political uncertainty as the year unfolds.


Ken Fisher:

So, we have this election year, and it's right here in front of us. And we all know that probably, but not certainly, the Republican nominee is Donald Trump. And probably, but not certainly, the Democratic nominee is Joe Biden. And in reality, at the age of these two men—and other things equal—something untoward could happen to them. And, of course, that would be regrettable regardless of whatever you think about them. But there's a couple rules of thumb you can say. Generally, presidential election years have been pretty positive, as I've often said. Fourth years—election years—have been positive 83% of the total history of the S&P 500 with average returns of about 11%. The display in them typically is different when we have a Democratic president running than when we have a Republican president running.

When we've had a Democratic president in the White House, the election year returns have been fairly steady through the course of the year. When we've had a Republican in the White House, they've tended to be lower early in the year and increase in the back part of the year. Why? Because people tend to think the Republican is more pro-business. And if he's been in the White House and he's up against a—obviously—Democrat who might unseat him, there's a risk that you lose that. And in the early part of the year, people tend to fear that a lot. That fear doesn't translate quite so much with the Democrat who people tend to think is not very pro-business, but more pro-big government, pro-regulation.

The fact continues that election years tend to be pretty good, particularly election years where the midterm election year was bad. I've spoken about this before. You may have heard this from me before, but if you take midterm election years—the second year of a president's term—that have been negative, the subsequent fourth year has been positive every single time, going back to 1932. It's every single one. No exceptions. 15% average annual returns. The reality is that's kind of what's normal.

Now, you never perfectly get what's normal. And if you look at these two guys that are likely to be the nominee, neither one of them is normal. But the feature about those guys is in this election more than any election in—well, maybe since 1892 when Grover Cleveland ran the second time—we know these two so well and so long that it's really hard to change our views of them very much. There's a lot of stuff going on out there, and none of it seems to change our views about them very much. And you know all the stuff that you read about in the newspapers. So I don't have to go into any of that. But the reality is none of that has changed people's views in a polling sense that have moved numbers very much. A little bit, just a little bit.

So, let me go back to another point about this year. Is it possible that something moves that a lot? Yep. Is it possible that something untoward happens to one or both of these older men? Yep. That would be untoward. It would be unfortunate. But anything like that that creates real weirdness would drastically increase volatility. You follow the logical reason for that? If you take either one of these gentlemen, and you have something untoward happen to him, or heaven help us both of them, that increases uncertainty. And the uncertainty will make the market go volatile, wild. That doesn't tell you necessarily that it doesn't end up the year with that same kind of number that I was talking about before. It just says you're likely to have extraordinarily more wild gyrations in the course of the year than you would normally expect with an incumbent Democrat running for reelection.

So that's kind of my general overview of what I would expect relative to the election's impact on the stock market. Of course, remember, that's only one aspect. It's a big aspect. It's a really important and powerful aspect. But there's other things out there that impact markets as well. And we have to keep our eye on all of those. Thank you very much for listening.

Hi, this is Ken Fisher. Subscribe to the Fisher Investments YouTube channel. If you like what you've seen, click the bell to be notified as soon as we publish new videos.

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