The Stock Market in an Election Year

by | Jun 20, 2024

Anxiety tends to be high in presidential election years, as investors fear the financial impact of political outcomes. However, historical data shows no pattern that indicates election year returns are significantly different from non-election years. 

As the 2024 presidential election approaches, many investors are questioning how the stock market will react and what actions they should take with their portfolios. Roughly half of investors are concerned about the possibility of another four years for Joe Biden. The other half is terrified at the notion of another Trump presidency.

Both sides assume election consequences that go far beyond one’s finances, but stock market volatility is a concern, nonetheless. Historical data on the stock market’s performance during election years offers clarity and valuable insights.

Historical Stock Market Performance in Election Years

One key question investors often ask is whether election years lead to significant differences in stock market returns compared to non-election years. Analyzing data from past election years reveals a surprising consistency. Historically, the stock market has shown a tendency towards positive returns during election years, much like in any other year. From 1926 to the present, there have been 24 Presidential election years, of which 20 yielded positive returns for the S&P 500 Index.

However, it’s important to recognize the limited data set. With only 24 presidential election years to analyze, the sample size is relatively small. This limitation suggests that while patterns can be observed, they should be interpreted with caution.

Political Party Influence on Market Performance

Another common question is whether the political party in power affects stock market performance. Historical data does not show a definitive pattern favoring either Democrats or Republicans. In fact, of the 24 Presidential election years where the S&P 500 was positive, Democrats and Republicans tied for the total number of election victories at 10 apiece.

The data indicates that market performance is influenced by a multitude of factors beyond just the political party of the sitting president and that there is no discernable pattern that shows one party’s victory is better for the stock market vs. the other.

The Fallacy of Timing the Market Based on Elections

One of the most persistent myths among investors is the belief that they can time the market based on election outcomes or political climates. Historical evidence strongly suggests that this strategy is flawed. Attempting to time the market often leads to missed opportunities and significant losses. In contrast, consistently staying invested in the market has proven to be a successful strategy for investors in the past, albeit one that requires discipline.

Market Resilience

Regardless of political changes, companies continue to innovate and seek profits. The resilience of businesses to adapt to new regulations and political environments ensures that the market continues to grow over the long term. Historical data supports this, showing that the market tends to recover and advance despite various political and economic challenges. A good question to ask yourself is, “Will Amazon stop delivering my packages if the other party’s is elected?” “Will groceries no longer be available at the grocery store?” “Will Ford stop manufacturing vehicles?” And so on, and so on, and so on.

Practical Advice for Investors

For investors concerned about the impact of the 2024 election on their portfolios, the best course of action is to remain committed to their long-term investment strategies. Historical data demonstrates that making investment decisions based on political events often leads to suboptimal outcomes. Instead, maintaining a diversified portfolio and staying invested through market fluctuations tend to yield better results over time.

By staying the course and bearing the inherent uncertainties of the market, investors are more likely to achieve favorable outcomes and grow their wealth steadily over time. For those nearing retirement trying to navigate these waters alone, it’s wise to speak with a CERTIFIED FINANCIAL PLANNER™ professional for individual advice.

Want more help? Let’s chat.

Joe Allaria, CFP®

Joe Allaria, CFP®

Wealth Advisor | Partner

As featured in The Wall Street Journal, USAToday.com, CNBC.com, Nasdaq.com, and Yahoo Finance.

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