Election Year Stock Market History and Investment Strategies

Looking back at election year stock market history, we can see some interesting trends. From 1928 to 2020, the S&P 500 has averaged a 7.4% return during presidential election years.

Many investors tend to get nervous during election years, but history suggests that the market often performs well. In fact, since 1928, the S&P 500 has gained value in 70% of all presidential election years.

However, it's worth noting that the market can be volatile during these times. In 2008, the S&P 500 dropped by 38.5% during the election year, a stark contrast to the overall trend.

To navigate these uncertain times, it's essential to have a solid investment strategy in place.

The S&P 500 has increased in 13 straight presidential re-election years, averaging a 15.8% annual return since 1944.

Presidential re-election years tend to bode well for equity markets, as incumbent presidents often implement policies to boost the economy and win re-election.

The S&P 500 averages a 13% greater return in re-election years than open election years, likely due to incumbent presidents' efforts to assist re-election efforts.

Historically, the stock market has performed well during presidential election years, with an average gain of 7% since 1952.

Market predictions tied to election outcomes have shown a remarkable accuracy rate, with the stock market correctly predicting the presidential winner in 87% of cases since 1928.

A declining market prior to the election has often been an indicator of the incumbent party's defeat.

Here's a breakdown of the S&P 500's average annual returns during presidential election years:

Despite the political party in power, the stock market has maintained an average return of 11.6% during election years since 1926, slightly outperforming its overall average annual return.

The year following a Democratic win sees an average market gain of 11.3%, compared to 6.6% after a Republican victory.

The presidential election cycle theory suggests that in the first two years of a term, markets will have weaker returns while in the third and fourth years, there will be much stronger returns, particularly in year three.

However, this theory has notable limitations, including the fact that cyclical trends in market performance are more likely a matter of correlation than causation.

Additional reading: Average Stock Market Return

The stock market's performance during election years is a fascinating topic. Historically, the S&P 500 has seen a 13% greater return in presidential re-election years compared to open election years.

The data shows that the S&P 500 averages a 15.8% annual return in presidential re-election years since 1944. This is a significant advantage for investors who can ride out the uncertainty of an election year. In fact, the S&P 500 has increased in 13 straight presidential re-election years.

Since 1926, the S&P 500 has experienced an average gain of 11.6% during election years, slightly outperforming its overall average annual return. This is a remarkable trend that suggests the stock market is often a winner during election years.

The U.S. stock market performance has been influenced by the party control of Congress, although the impact is not as straightforward as one might think. Since 1950, the mix by political party in Congress and the White House that yielded the highest average annual returns for the S&P 500 is a Democratic president and divided Congress.

A divided Congress can lead to slower change or no change at all, which might be welcome news to the markets, as they are afraid of uncertainty. In either case, it's impossible to identify any trends when zooming out and looking at the bigger picture over time, as long-term investors should. The stock market is not the economy or the White House for that matter.

According to data from YCharts, the average annual returns for the S&P 500 under different party control scenarios are as follows:

While these numbers might seem to suggest a correlation between party control and stock market performance, it's essential to remember that the president does not control the bond market, either. Monetary policy, interest rates, and inflation are key factors in driving bond returns.

For more insights, see: Bond Market vs Equity Market

The Federal Reserve operates independently of politics, with Chairman Jerome Powell stating that they never consider politics in their decisions. This means that the Fed's actions are not influenced by the election year.

Investors are curious about how the Fed will operate later this year, especially with the November FOMC meeting falling a day after the election. The Fed's actions could have a significant impact on the stock market.

It's not out of the ordinary for interest rate cuts to come during election years, especially in the second half of the year. In fact, US Bank notes that this is a common occurrence.

It's generally a good idea to stay invested regardless of who is in office, as historical data shows that the S&P 500 has shown resilience and positive returns regardless of the electoral cycle.

Focusing on what you can control is key when investing for the long-term. It's all about time in the market, not timing the market.

Economic indicators such as growth rates, interest rates, inflation, and corporate earnings hold more sway over market returns than election outcomes.

The 2024 presidential election is likely to be just as close as the previous two, with less than 80,000 total votes deciding the outcome in 2016 and 2020.

In volatile election years like this one, short-term market fluctuations can create opportunities for long-term investments. We can expect an array of headlines and news stories that may have short-term market implications.

Finding quality buying opportunities during short-lived volatility requires attention to market trends. This means staying informed about market fluctuations and being prepared to act quickly.

The 2024 election is shaping up to be a closely contested race, with both parties vying for control. This level of competition can lead to short-term market instability.

In times of uncertainty, it's essential to remain calm and focused on long-term goals. By doing so, we can capitalize on short-term mispricing and make informed investment decisions.

For more insights, see: How Long Is a Year?

It's essential to focus on what you can control when investing for the long-term. Focusing on what you can control is key when investing for the long-term.

See what others are reading: When Is Eid This Year?

Staying invested regardless of who is in office has been the better financial move. The chart illustrates this, showing that staying invested has been more profitable than trying to time the market.

Personal feelings about politics can be hard to avoid, but it's crucial not to let them interfere with your financial plan. It's all about time in the market, not timing the market.

Historical data highlights the minimal long-term effects of elections on market performance. The S&P 500 has shown resilience and positive returns regardless of the electoral cycle.

Economic and inflation trends consistently outweigh electoral outcomes. This means it's wise to maintain a steady investment approach based on market fundamentals.

Investors should consider maintaining diversified strategies to navigate the uncertainties of election cycles. This is critical to pursuing long-term financial objectives.

Finding short-term mispricing for long-term investments can be numerous in volatile environments, such as presidential election years.

Discover more: Time in the Market vs Timing the Market Graph

The presidential election cycle theory suggests that stock market returns follow a predictable pattern, with the first two years of a term seeing weaker performance, followed by a spike in the third year and a decline in the fourth year.

According to Yale Hirsch's research, the first year or two of a presidential term coincides with the weakest stock performance, as the president focuses on fulfilling campaign promises and implementing their most deeply held policy proposals.

Data going back several decades indicates that the largest returns come in year three of the term, with an average gain of 13.5% for the S&P 500 since 1928.

Historical market performance shows that the third year of the presidential term often sees a significant increase in stock prices, with the S&P 500 experiencing an average gain of 13.5% since 1928.

A notable exception to this trend was Donald Trump's first year in office, which saw a 19.4% gain for the S&P 500 due to the passage of tax cuts.

The presidential election cycle theory also suggests that the results are fairly consistent, regardless of the president's political leanings.

Here's a breakdown of the average annual returns for the S&P 500 during the presidential cycle:

Since 1928, the third year of the presidency has seen an annual increase 78.3% of the time, demonstrating a notable consistency in the market's performance during this period.

The presidential election cycle theory is not a hard and fast rule, and there are several special considerations to keep in mind.

Jeffrey Hirsch, the current editor of the "Stock Trader's Almanac", believes the theory holds merit, especially in the third year of a presidential term.

A president's re-election campaign can drive the market up as they push to stay in office from a bully pulpit.

However, the theory is susceptible to unique events that can influence investor mood.

The makeup of the Senate and House of Representatives can also be an important determinant of market movements.

You shouldn't jump to conclusions when there aren't many data points to rely on.