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Election Cycles vs. Market Cycles

January 30, 2024

Brian Mackey

,

CFA®

A new year portends new beginnings. We’ll get an extra day in February, the Summer Olympics in July and August, and a US Presidential Election in November.     

While a Leap Year and the Summer Olympics likely won’t impact the stock market, a Presidential Election can potentially affect your investments.    

At Schechter Investments, we are long-term investors and believe that a buy-and-hold approach is the best way to compound your wealth in the stock market; but we wanted to share some statistics that we found interesting about how election cycles can impact market cycles in the short term. 

Presidential Elections
Looking at S&P 500 index returns from 1926, the stocks market has historically had higher returns with a Democrat residing in the White House. 

S&P 500 Return by Political Party in the White House

The average return masks a wide range of potential outcomes. Both parties have been in power when the index lost more than 30% and when it jumped more than 50% in a year. Regardless of which party is in the Oval Office, the stock market is much more likely to be up in any given year. 

Within the presidential cycle, stocks tend to perform best during a president’s third year in office—like the year we just had when stocks were up 26.3% (Source: SlickCharts.Com).  

The average return during an election year is 11.6%, close to the overall long-term average of 12.2%. 

S&P 500 Return in The Presidential Cycle


Like presidential parties, performance can vary drastically from year to year regardless of where we are in the presidential cycle and stocks are more likely to be up in each year of the cycle. 
 

Congress 
While stocks have fared better on average under Democratic presidents, they’ve done better when Republicans were in control of the Capitol Building. The worst outcome for stocks is when Congress is split, with one party controlling the Senate and the other in charge of the House.   

S&P 500 Return by Congressional Majority

Stocks still tend to have positive returns even when Congressional power is divided. Given that the House currently has a Republican majority, and the Senate has a Democratic one; the data suggests we are likely to have a lower stock market return in 2024 than in the previous year. 
 

 

Temper Expectations for 2024
In each scenario we reviewed, the range of potential outcomes was very wide—stocks have historically dropped over 25% or risen over 50% in any given year. Investors should always prepare for a wide range of outcomes since the Presidential Election won’t be the only factor to impact stock market returns. However, the averages suggest that 2024 won’t be as great for the stock market as 2023’s 26.3% return.  

We suggest tempering expectations for the stock market going into this year, but we don’t think it’s time to hit the panic button either. Stocks are more likely to go up than down in each scenario we analyzed, which suggests that time in the market beats market timing. 
 

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