US election, Bitcoin and real estate bubbles
This week’s chart pack analyzes the potential impact of the US election and a positive January on the S&P 500, the benefits of adding Bitcoin to a traditional 60 per cent equities / 40 per cent bonds portfolio and the evolution of real estate bubbles across the globe.
S&P 500: the January Effect
Can the performance of the S&P 500 in January set the tone for the rest of the year? The first month of the year has often been viewed as a bellwether for the following 11 months in a phenomenon known as the “January Effect” or “January Barometer.”
This chart reveals a trend going back to 1929, showing that a positive January often leads to a yearly gain of 13.2 per cent. Conversely, a negative January typically precedes an annual loss of 1.8 per cent. The rise of 1.6 per cent in January this year hints at a strong 2024, with a six per cent increase surpassing the average improvement when the S&P 500 is in positive territory.
S&P 500: the US Election
Investors are understandably eager to understand how the US election could impact equities, particularly the S&P 500. We have therefore analyzed the historical performance of that index at the year-end following past presidential elections, with a specific focus on periods when the incumbent party was Democratic.
On average, a win by the Democratic party correlates with the S&P 500 achieving returns between 10.4 per cent and 13.4 per cent.
In contrast, Republican victories see the index delivering slightly lower year-end returns in the range of nine per cent to 9.5 per cent.
While Democratic wins are correlated with greater returns, the range of outcomes in that scenario are broader and so more unpredictable, suggesting that the S&P 500's performance in election years is not purely politically driven.
Adding Bitcoin to a 60/40 portfolio
A dash of Bitcoin can go a long way to juicing up investment returns, this chart suggests.
Adding a mere one per cent allocation of the cryptocurrency to a classic 60/40 investment mix (60 per cent equities and 40 per cent 10-year bonds) can deliver a striking six per cent fillip to a portfolio.
This impact highlights not only Bitcoin's role as a powerful means of enhancing returns, but also underscores how digital currencies are reshaping the investment landscape, with minimal exposure potentially delivering disproportionate benefits.
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