Election 2024: What To Expect Amongst The Uncertainty
Election 2024: What To Expect Amongst The Uncertainty
By: Kyle Upp - Wealth Advisor
With just a few weeks to go until Election Day, 2024 has not been a standard election season, as evidenced by assassination attempts on former President Trump and President Biden stepping down as the Democratic nominee. Even compared to prior cycles, the 2024 U.S. presidential election is likely to be marked by significant uncertainty, exacerbated by recent events and the growing division of policy positions between Democrats and Republicans. Below, we analyze how markets have historically reacted to the presidential cycle and election outcomes.
Even with all the uncertainty up to this point, this year has been well above average in terms of the magnitude of stock market performance. However, this has not been a surprise when looking at other presidential election years — overall positive with a summer dip. In election years, on average, stocks typically find a bottom from the late summer jitters right around a week before the election.
The third quarter of the final year of a presidential cycle is typically a below-average environment for stocks, as markets typically assess each candidate’s policies and chances of success in the upcoming election. Getting through this quarter, especially in a year where the presidential race is so close, with a more than 5% gain for the S&P 500 is well above average (+1.5%). Markets generally react positively to the degree of uncertainty that is removed following the presidential election result, even if the full details of policy in the years to come are still not fully defined.
Much is made of the presidential election and how policies may affect the economy and the stock markets, but some of my favorite charts show that historically markets don’t have a strong preference for one party over the other. Markets like certainty, even if that certainty derives from the status quo amid political gridlock. For this reason, stronger returns tend to happen under a divided government. Most strikingly when looking at Congress alone, average returns when Congress is split are 14.9% compared to just 8% when one party controls both the House and the Senate, underscoring the power of Congress to decide policy. Including the president in the equation, when one party holds the trifecta of president, House of Representatives and the Senate, average returns are closer but still favor power sharing (8% average for the trifecta versus 9.7% for power sharing).
The election is expected to increase short-term market volatility, with historical correlations suggesting potential stock market fluctuations tied to political uncertainty. While differing candidate policies could create specific investment opportunities across areas such as trade, energy and fiscal policy, we believe that bond markets and alternative investments may offer diversification and stability amid policy uncertainty. More strategically, stocks have performed well under presidents from both parties, with political gridlock the preferred outcome.
While it is hard to ignore the noise, it is important to step back and remember that this is not uncharted territory. If you have any questions or concerns regarding the upcoming election and its impact on your retirement/savings, please feel free to reach out to our office to set a time to speak to your advisor.
