How Will the 2024 Presidential Election Impact the Markets?
U.S. presidential election years tend to be drama-filled and emotionally charged. For some investors, that means more stress. But I’d recommend pushing in the opposite direction, by recommitting to being dispassionate, disciplined, patient, and focused on the long term. Even though it often feels like everything is riding on the outcome of the election, history reminds us—very clearly—that election results have not driven market results over the long term. The economy and corporate earnings do.
For as long as I’ve been an investment manager, there has been investor sentiment that if candidate so and so wins the election, it will be terrible for the stock market. But a look at past election year returns—as well as longer-term returns for U.S. stocks—demonstrates that such an outcome has never materialized. In the cases where we have seen post-election downturns, it has been tied to broader economic factors, not the election or re-election of the president.
Since the inception of the S&P 500 in the 1920’s, there have been 24 U.S. presidential elections. In 20 of them, the S&P 500 registered positive total returns. In the four instances when the stock market fell (highlighted in yellow below), the U.S. economy was in the Great Depression, the early days of World War II, the 2000 tech bubble, and the 2008 Global Financial Crisis. The last time the stock market fell in a presidential re-election year was 1940.
It is common in presidential election years for investors to assume their political party is better for the stock market. But history says the stock market goes up regardless of how power is divided. Looking back at just the last eight years, some investors may have held back on equities during President Trump or President Biden’s respective tenures, based on politically-driven perceptions about their ability to lead. But that would have been a mistake. Stocks have risen substantially over the past eight years under both administrations, and currently trade near all-time highs.
This is not to say that politics and policies do not matter to economic growth and corporate earnings. They do. Regulatory changes, tax law changes, energy policy and foreign policy would be fundamentally different depending on who wins the 2024 election. But an important point for investors to consider is that markets are already familiar with both candidates and their policy proposals, since both candidates have been president before. There’s still plenty of uncertainty swirling around this election, but perhaps not as much as some investors think.
At the end of the day, no one knows how the election will unfold. But I do know and believe that changing your long-term strategy because of a short-term unknown is not a prudent approach – it hasn’t been throughout history, and I do not think it would be prudent today.
Bottom Line for Investors
Over time, the stock market responds more to long-term earnings trends and broad-based economic growth, not to changes in political leadership. The emotional gravity of an election may make it appear as though the outcome will make or break the nation. But this mindset puts far too much emphasis on political figures and policies, and too little emphasis on the real engines of the U.S. economy: corporate earnings, small business growth, infrastructure investment, personal consumption, and innovation. Politicians come and go, but the desire to grow, innovate, and pursue profit remains a constant.
DISCLOSURE Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.
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