Will the 2024 presidential election affect the stock market?

David S. Gilreath, CFP

Every presidential election year, there’s an unrelenting media focus on how the outcome will affect the stock market.

It never fails. In one article after another, financial journalists inflict on their audiences unrestrained speculation about how the stock market may fare as a result of one political party winning the White House versus the other.

These commentaries never suggest that the election outcome may not make much difference, as they follow a hallowed journalistic axiom: Never discount the thesis (or assumption) driving a story because, of course, that story must be done, regardless of how shaky its basis may be.

An old adage

An old newspaper adage comes to mind — one that’s common in screenplays of newspaper movies from the 1930s and 1940s: “Never let the facts get in the way of a good story.”

In this case, the inconvenient fact that gets in the way is that it historically hasn’t really mattered for the market which party wins the presidency. This has been true for the better part of a century.

During presidential administrations since Eisenhower, the mean compound annual growth rate of the S&P 500 index of large company stocks has been 9.6% for Democratic presidents and 6.2% for Republicans. But the median growth rate has averaged 8.5% during Democratic administrations and 10.2% for Republicans.

So media speculation over how a presidential victory by either party would make a real difference in the market during their administrations is much ado about nothing, with a quadrennial din of political noise combined with market noise.

Investors are always better off ignoring noise (in favor of data) when managing long-term portfolios, and political noise is no exception.

Buying opportunity

However, investors interested in adding to stock positions at discounted prices may not want to ignore the fact that an election is about to be held, as this alone usually has a significant impact on short-term market performance. Recurring election-season market patterns often create buying opportunities.

Election years are highly volatile for the market, and heightened volatility in the autumn of those years is almost as predictable as leaves changing color.

On average, in presidential election years from 1928 to 2024, the S&P 500 has risen several percentage points in the summer before declining in the fall — for losses in September and October: -0.3% and -0.5%, respectively. Over the last 10 years, the dip has averaged 2.31%.

Once elections are over, this index has usually headed upward again, gaining an average of 1.2% in November and 1.5% in December. And it usually continues heading upward in January.

So cashing out of the market in the fall is usually a losing strategy, while buying (low) post-election can often position investors for solid gains the following year — especially amid a bull market like the current one.

In many past election years, the early fall dip started in September, but that hasn’t turned out to be the case this year, as the market was that month. Yet, if past pre-election autumn averages manifest again, a pre-election decline would likely occur in October — before bouncing upward in November.

After the cloud lifts

The timing of this historically average post-election bounce may seem like a head-scratcher, as it’s usually unclear before presidents take office precisely what policies may be forthcoming, campaign promises being what they are.

Yet, while this specific uncertainty may linger, general uncertainty over the election outcome is over after the votes are counted.

So normal trading resumes, pushing up markets already inclined to rise from longer-term factors.

Yet there’s a caveat — one that concerns an atmospheric effect that can slow the clearing of the cloud of market-suppressing uncertainty.

The market historically hasn’t liked sweeps — when one party takes the White House and both chambers of Congress. It prefers divided government because this creates a likelihood that little will get done and that things won’t change much, meaning less uncertainty.

When one party sweeps the election, uncertainty rises because it means a lot of bills can be passed and signed by the president, potentially affecting stocks.

But, as no polls currently suggest a likely sweep November 5, continued divided government seems probable.  

Once the election uncertainty cloud clears, long-term factors driving the market can resume their influence unimpeded. This time around, these factors are the forces driving the remarkably strong bull market.

Financials and tech

In recent decades, some sectors have done much better the year after elections than others. The standouts are financials, with post-election-year returns averaging 23% (up from 12.4% in election years), and technology, averaging a gain of 23.6% (up from 7.2%).

This year, these two sectors already have momentum. As of mid-September, year-to-date gains for both technology and financials exceeded 20%.

And after the 2024 election, historically likely post-election gains for the overall market will probably be enhanced by some new bullish factors. 

Bullish Factors

One of these stems from the persistent bearish obsession with recession, which has recently been rearing its paranoid head once again. This talk tends to have a downward effect on prices, and this suppression can set up bigger gains from election-season lows after a recession fails to materialize.

Overwhelmingly, data shows that these obsessive bears are, as presidential speechwriter William Safire famously wrote for Spiro Agnew, just nattering nabobs of negativism.

Leading economists see no reason to suspect that a recession may be on the horizon. Nor does Fed Chair Jay Powell, who said as much Sept. 18 in announcing Federal Reserve’s .50% cut in the Federal funds rate, which triggers declines in virtually all domestic interest rates.

The Fed cut, the first of a few expected this year with more to come in 2025, is aimed at winding down the Fed’s restrictive rate policy. It marks the beginning of what will likely be a long rate-cutting cycle, following a sustained period of elevated rates, originally raised by the Fed to reduce inflation.

Stimulative for the economy, rate cuts usually benefit stocks in general for months to come, especially those in certain sectors — financials and technology among them.

Another bullish factor is the prospect of new investment adding power to the bull. The beginning of the Fed rate-cutting cycle means that interest rates paid on money market accounts will go down seemingly as fast as car windows.

As a result, the more than $6 trillion currently held in these accounts will naturally start flowing into higher-yielding investments — including stocks, as yields on new bond issues also decline. This infusion of cash into the market next year will probably push up stock prices.

If the election autumn decline occurs again and hits a trough around election day, as usual, this would be a likely take-off point for the market on the runway to substantial gains in 2025 — especially for investors who buy this dip judiciously.

Dave S. Gilreath, CFP, is a founder and chief investment officer of Sheaff Brock Investment Advisors, a firm serving individual investors, and Innovative Portfolios,® an institutional money management firm. Based in Indianapolis, the firms were managing assets of about $1.4 billion as of June 30, 2024.

Investments mentioned in this article may be held by those affiliates,Innovative Portfolios’ ETFs, or related persons.