By: Amanda Hadley
The presidential election is right around the corner, and the S&P 500 and Dow Jones Industrial Average recently hit all-time highs. However, many Americans are nervous about this election’s impact on the markets, perhaps with memories of 2008 in focus.
While nobody can know what will happen for sure, historical data can help us navigate the perceived uncertainty surrounding the 2024 presidential election season. I’ve summarized key data points for you below.
Where We Have Been
Before we dive into historical data and trends, let’s consider where we have come from and how we have arrived in our current place.
S&P 500 yearly returns since 2016 are as follows:
2016: +9.54% (presidential election year)
2017: +19.42%
2018: -6.24%
2019: +28.88%
2020: +16.26% (presidential election year / Covid / can you believe it)
2021: +26.89%
2022: -19.44%
2023: +24.23%
2024: at the time of writing, the year-to-date return for the S&P 500 is +22.29% (this varies daily).
This is mentioned because it has been a wonderful time period to be a long-term investor. While we have experienced spats of volatility along the way, the long-term results have been quite favorable as we enter this election season.
Let’s also consider that, during this period, we got through COVID-19, the highest inflation in 40 years, rising interest rates, and plenty of geopolitical tensions.
Logic would dictate that a pullback of some kind could be in the cards in the future, but will the presidential election in and of itself be that catalyst?
Historical Election Year Returns & Volatility
While the S&P 500 historically has posted lower total returns in election years versus non-election years (data from 12/31/1927–12/31/2023), results have shown an average annual gain of 11% and a median annual gain of 14% during election years. Perhaps surprising — and not too shabby!
Historically, there has been a spike in volatility in both equity and bond indices before and close to election days, especially in the month of October.
Of course, past performance is not indicative of future results, but historical data is helpful within analysis.
October’s Reputation for Volatility
When it comes to presidential election years, there is a bit of a double whammy regarding volatility, as October tends to be the most volatile month of the year for stock markets.
Given the recent Fed rate cut, some interpretations are that it could be different this time. However, as October began, we saw volatility tick higher in the S&P 500, as measured by the VIX Index.
Post-Election Day: A Light at the End of the Volatility Tunnel?
Once traders and investors navigate through October and make it to November 5th, a dose of uncertainty becomes removed as a winner is declared.
We also see that, according to decades worth of data, volatility tends to fall sharply in December of election years, so there a light at the end of the volatility tunnel. December also tends to be one of the better months of the year for stocks overall.
Election Outcome: Stocks or Bonds?
This question comes up a lot in financial circles, and there are varying interpretations surrounding the outcome of the election and what it could do for the financial markets.
Instead of trying to pick whether stocks or bonds are the better choices based on an election winner, having an appropriate blend of both types of assets for the long term is smart.
Election Season Mentality
There are all kinds of ways to think about what could happen during this election season and through the end of the year, and there is no shortage of opinions. Moreover, looking at historical data, there is no certainty that we can draw from.
But one thing is for certain: the long-term investing mentality should persist in our minds, regardless of election-related headlines (and there are sure to be many!).
Staying invested throughout market cycles includes presidential election cycles, and staying invested for the long term is what it’s all about.
With that said, please know that we are here as a resource for you if you have any financial questions or concerns during this election season and beyond. Reach out anytime.
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