Election Year Market Performance

Question: How does the 2024 election influence financial market performance and activity? 

Answer: Election years historically post the second lowest market returns of the presidential cycle with an average monthly return of 0.54%. However, markets play catch-up after election year uncertainty is resolved, averaging a monthly return of 1.28% during the year after the election. 

The most likely election scenario for 2024 is a rematch of the 2020 election. Yet there is a nagging feeling that something could happen to reset or alter the race and produce an unexpected outcome. Three additional risk factors facing investors are 1) Geopolitical: Russia/Ukraine, Israel and Gaza, and China and Taiwan), 2) Economic growth, and 3) Inflation/Recession risks. Expect volatility with weakness and strength as we find clarity on key issues.

February, March, October, and November 

As Republican voters head to the primaries, Donald Trump’s continued strong polling numbers suggest his likely nomination to the Republican presidential ticket, but his legal challenges remain a significant wildcard requiring identification of a clear alternative to former President Trump. March brings thirty-four primary elections, including sixteen states with primaries on Super Tuesday. By the end of March, we’ll have clarity on who the nominees may be, with more than half of both parties’ delegates awarded ahead of the Republican convention in July and Democratic convention in August. During an Election year, the period of March through October provides perceived clarity producing historic positive average monthly returns of 0.97%. 

What else does Washington D.C. need to achieve in 2024?

Aside from electing a president and a new Congress, D.C. has an important to-do list, including government funding and responding to a changing global security environment. At the time this is being written, the government funding debate has not been resolved. Temporary government shutdowns and triggers of 1% across-the-board spending cuts remain possible, which could add to market volatility in the first quarter. Spending cut discussions could bring a potential near-term slump, yet implementation of major infrastructure legislation, including the bipartisan infrastructure law and the Inflation Reduction Act, which will continue to be deployed and have significant macroeconomic impacts.

Geopolitics is another priority in D.C. during 2024, with parallel wars between Russia and Ukraine, and in Israel/Gaza. These concerns will likely influence key legislative, political, and regulatory outcomes this year. Fiscal spending is under close scrutiny under the leadership of new House Speaker Mike Johnson while discussion of additional funding for Ukraine and Israel border security commands attention and debate. Expect the political process to slow the ultimate passage of supplementary defense funding. It’s anticipated that we’ll see higher defense spending in the long term as national security reemerges as a core theme in D.C.

Finally, the U.S./China relationship remains in focus this year as D.C. and Beijing try to restabilize the bilateral relationship. National security initiatives such as expanded restrictions on the export of advanced technology of semiconductor chips can generate new geopolitical risk for investors to monitor.

The Presidential race will likely remain close until the polls open and close on November 5. According to a report by Vanguard, since 1860 a balanced portfolio of 60% stocks and 40% bonds has returned 8.2% under Republican Presidents and 8.4% Democratic presidents. Starting from that same time, election year returns have averaged 8.9%, while non-election years have averaged 8.1%. 

We see more market weakness prior to a Democratic presidential victory as opposed to a Republican win. Despite pre-election volatility, markets tend to quickly play catch-up and see outsized returns. Political beliefs influence investment decisions. However, it’s important to remember that politics and investing are two separate things. 

Investors are cautioned to avoid using the election as too much of a catalyst for investment decisions, highlighting the importance of having a long-term investment strategy and not letting short-term political events influence your investment decisions. 

As stated by the legendary Peter Lynch, former manager of the Fidelity Magellan Fund, “Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in corrections themselves.” Stay focused and plan accordingly.