Quarterly Commentary – October 2024

The US Presidential Election and the Investment Markets

 It’s safe to say that the loudest conversation of 2024 has been the US presidential election. It’s almost a movie script, and we’re just building to the climax with no clear outcome! With the election in mind, many clients have asked me how much will the outcome shape the investment markets for the end of 2024 and into 2025?

One of the investment companies we have been working with for many years, Capital Group, dove deep into this question four years ago and recently updated their research and findings. Here is what they learned and confirmed.

First, it does not matter which party wins the election, it has had no meaningful difference to the stock market. Since 1933, there have been eight Democratic and seven Republican presidents, and yet the US stock market (S&P 500) has generally continued upwards regardless of the president. Only one president over this time saw the S&P 500 drop slightly over his terms in office … George W. Bush (2001 to 2009), where he arrived in office at the back end of the tech boom and left in the middle of the financial crisis.

Second, instead of the election dictating market direction, it appears the markets have dictated the election direction. If the S&P 500 (the main US stock market index) has been up in the three months prior to election day, the incumbent party usually wins. If the S&P 500 is down during that period, the opposing party typically wins. This trend has held true for 20 of the last 24 presidential elections. In the last three months (to October 25), the S&P 500 is up 6.4%. Will this fact make this indicator correct for 21 of 25 elections? We shall see!

Third, investors tend to be more conservative in election years. The negative rhetoric and messaging creates a pessimistic attitude/feel that causes many investors to park a larger portion of their savings/investments in cash (e.g., high-interest savings accounts or money market funds). Then, the following year, when the outcome and policy directions are known, we typically see the investment markets move upwards as investors put their money back to work. So far, 2024 has supported this trend, which bodes well for the months ahead.

When all put together, my conclusion is it’s best to not over-think the presidential election in relation to the investment markets. It is just another chapter of history being written and we are best to make smart investment decisions that focus on other factors.

 I hope you find this information interesting and helpful. May your fall continue well and stay dry! 

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