An election year is good for the stock market

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2024-07-02 18:11

Author|Dai Xianfeng

Overseas macro hedge fund manager, communication planet APP expert (TA has settled in communication planet APP)

PS: The views in this article are for readers' reference only and do not constitute personal investment advice, and investors should judge and bear their own risks based on their own circumstances.

A. Summary

In an election year, stocks tend to deliver positive returns. If there is an incumbent president running, the return on stocks is even higher. Since the 1932 election, the S&P index has returned an average of 7.7 percent in election years and 9 percent in the year when the incumbent president was running.

This is because election years tend to be strong. A strong economy could be a coincidence, or it could be the result of the administration's efforts — after all, they want to be elected.

It is generally assumed that the incumbent candidate will have clearer policy choices and therefore a more positive response to the market. But it can also be a statistical anomaly, as stock market returns were deeply negative in 2000 and 2008, the two years in which no incumbent president was running.

Based on the above observations, the 2024 election year is likely to be more favorable for the stock market. There are two presidents running this year. And the U.S. economy is performing strongly, and the Fed is ready to start cutting interest rates.

A Trump victory could make the stock market more positive. After Trump's last victory, the market rallied strongly and for a long time, despite a brief sell-off in the immediate aftermath of the election results.

B. In an election year, the stock market tends to do well

In an election year, stocks tend to deliver positive returns. Since the 1932 election, the S&P index has risen by an average of 7.7% in an election year. In years with incumbent presidents running, the S&P index returns an average of 9%.

There may be some underlying reasons for the higher returns of an election year with an incumbent president. But it can also be a statistical anomaly. 2000 and 2008 were both years when no incumbent president was running, and the depth of S&P returns in those two years was negative.

C. Election years with negative stock returns are all associated with recessions

2000 and 2008 were two of S&P's most recent years of decline, both of which were associated with recessions. The bursting of the tech bubble led to the recession in 2000, and the financial crisis led to the recession in 2008.

D. 2024 is likely to be positive for the stock market

2024 could be positive for the stock market: 1) this is an election year; 2) two presidents running for election; 3) a sound economy; 4) The Fed is starting a cycle of interest rate cuts; 5) Trump could win.

The most important factors are the economy and the Federal Reserve.

D1. Both the U.S. economy and the Federal Reserve support the stock market

The economy and Fed policy are the most important drivers of the market, which is good for the stock market.

The risk of a recession in the U.S. in 2024 and 2025 is low – consumers still have spending power.

Despite the recent slowdown in economic growth, the job market remains strong.

Consumers have a lot of wealth and cash.

The Federal Reserve is embarking on a cycle of interest rate cuts. The Fed is expected to cut rates once in 2024 and four times in 2025. The Fed may even cut rates twice in 2024.

D2. A Trump victory could be positive for the stock market

Trump's surprise victory in 2016 drove a strong rally that continued throughout 2017.

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