As the 2024 U.S. presidential election nears, questions naturally arise about the potential impact on markets and investment portfolios. While elections, particularly in major economies like the U.S., can influence short-term sentiment, they represent only one of many factors that shape market performance over time.

Ultimately, shareholders invest in companies rather than political ideologies, and businesses remain focused on growth and customer service, regardless of government changes. Let’s examine how historical data and evidence provide useful context for navigating the current election cycle.

Historical Data on Market Performance

From 1929 to the end of 2023, the average annual return of the S&P 500 across presidential terms was over 11%, with only three presidents experiencing negative market returns (Herbert Hoover, Richard Nixon, and George W. Bush). This suggests that, despite periodic fluctuations, the long-term market trend has generally been upward, regardless of who is in office.

Markets are influenced by a blend of macroeconomic factors—including interest rates, inflation, monetary policy, and global events—that often outweigh the impact of any single administration’s policies. While presidential policies can affect certain sectors temporarily, fundamentals (like corporate earnings) remain the primary drivers of market performance.

Market Reactions and the 2016 Experience

During the 2016 U.S. presidential campaign, many investors feared that a Trump victory would lead to market declines. Yet, contrary to predictions, the S&P 500 rallied significantly following his election, driven by pro-business policies like corporate tax cuts and deregulation, which benefited technology, financials, and other key sectors.

As we approach this election, markets may be less prone to surprise reactions, as Trump’s policy stances on fiscal matters, trade, and foreign relations are now more familiar. Markets tend to value predictability, which can mitigate volatility, even during political transitions.

Is This Election Different?

This election carries unique significance for many, given the heightened debate over issues such as democracy, global stability, and the U.S.’s role in the world. Some analysts suggest that the 2024 election could have greater-than-usual historical impact due to the polarized political climate and pivotal global issues on the table. This heightened sense of impact reflects the weight of issues not solely tied to economic policy, including national security and democratic governance. While these factors may add to market uncertainty in the short term, long-term evidence suggests that the resilience of markets helps mitigate the influence of even highly charged elections over time.

Do Returns Vary by Political Party?

While it may be tempting to associate market performance with the president’s party, historical data suggests that this relationship is more nuanced. From 1929 to 2023, average annual S&P 500 returns were higher under Democratic presidents (13.7%) than Republicans (9.4%). However, extreme economic events, like the Great Depression and the Global Financial Crisis, heavily skew these averages. Adjusting for these outliers raises the average return under Republican presidents to approximately 15%.

In short, while short-term fluctuations may accompany shifts in political leadership, the market has generally adapted and grown over time, regardless of the party in office.

S&P 500 Index, Growth of $1

1926-2023

Staying the Course for Long-Term Gains

Long-term investment strategies have historically outperformed attempts to time the market based on political events. The data shows that markets tend to normalise after short-term reactions, reinforcing the value of staying invested through market cycles.

As always, we’re here to provide informed guidance and help ensure that your portfolio remains resilient, no matter the election outcome. If you have any questions or would like to discuss your investment strategy further, please talk to your adviser.