How Do Stocks Perform In Presidential Election Years?

We are less than a year away from the 2024 presidential election. The 2020 election was one of the more contentious elections in US history and the 2024 edition appears to be headed in the same direction. This quarter, the top question we have heard in conversations with clients is, “How will the elections impact my investments?” To get some clarity, we delved into historical data, aiming to sift out the political noise from the investment landscape. 

Stocks have done well in presidential election years. In the 18 elections since 1950, the S&P 500 has posted an average return of 7.3%. This slightly underperforms the S&P 500 in all years (8.86%) and non-election years (9.29%). It's worth noting that 2008, an election year, stands out as the worst market year since 1950, seeing a 38.49% drop in the S&P 500. However, when we exclude that turbulent year, the returns in election years surpass those of all years and non-election years. 

So, what about the roller-coaster reputation of stocks during election years? Surprisingly, it's not as wild as one might think. Volatility, which is how we measure the ups and downs for stocks, is lower in election years. Also, election years have had positive returns of 83% compared to 72% for all market years.  

Looking at the market performance monthly, certain months tend to stand out from a performance and volatility perspective during election years. In January, March, and November, the market sees an uptick in volatility during presidential election cycles. This is somewhat logical because the campaign begins in January, March is a pivotal month for primaries, and November is when we go to the polls. Other months tend to see lower volatility when compared to non-election years.  

After reviewing how things have performed in prior election years, how does this translate to your investment strategy? The key piece of advice here is: don't let the election season sway your investment decisions. In fact, we strongly suggest keeping politics separate from your financial decisions. It's totally understandable to feel a bit wary as we approach 2024, but don’t let that cause you to stray from your investment strategy. Elections can play a role in investment outcomes, but remember, corporate earnings and economic growth are the real heavyweights driving returns for the year ahead. 

Andrew Comstock, CFA