Blaise Wyant
February 28, 2024
Economy Monthly commentaryMarket Commentary, February 28 2024
How have markets reacted during previous US Presidential election years?
Among the many variables investors try to solve for when making plans is the once every 4 years decision on who will occupy the White House. I will leave my personal political feelings aside, but I think we can all agree that the choices that American voters have are past their “best before” dates. The candidates themselves seem to be slinging dirt as to who is the more “cognitively impaired “more than discussing platforms.
With thanks to recent articles in both Barrons and Forbes I present some Presidential Election year market statistics.
Over the last 16 US Presidential Election years the S&P has risen fourteen times. The average return was 10.5%. The two negative years were 2000 (beginning of the Dot Com crash) and 2008 (the heart of the Financial Crisis/Great Recession).
Further, election years on average slightly outperform nonelection years during this time. (10.5% for election years vs 10.1% for all other years during the sample). It does not seem to matter who gets elected either, Democrat or Republican.
The only pattern that seems to arise is a tendency for markets to show weakness in the middle of the year and a catch up in the last half. This is sometimes attributed to the newspaper coverage of the candidates’ economic policies. Professors Scott Baker of Northwestern University, Nick Bloom of Stanford and Steven Davis from the University of Chicago created an index for this syndrome creatively named the “Economic Policy Uncertainty Index”. The data goes back to 1900 and demonstrates a distinct pattern of rising markets from January through early summer then modest declines followed by recovery in the last half of the year.
At this point you are probably thinking “ok, so what?” So, what indeed. Professors Baker et al likely put many hours into their “Index” and burned through some grant or another to give us Data that will not make anyone rich. My conclusion is that like the “Sell in May and Go away “or the “Beware October” advice, you cannot rely on seasonality to guide your investment decisions.
My takeaway is that US Presidential Election years are not much different for the S&P than any other year. As boring as it seems sticking to the asset mix you are comfortable with and not trying to time things is the best policy. Goodness knows how these two candidates and their parties will behave this year. However, after some potential short term volatility it is a good bet that the US stock markets will digest it and move forward.