“I think there will be a crash if I don’t win,” said Former U.S. President Donald Trump and the Republican front-runner for the 2024 Presidential Elections in an interview a few days ago.
The Former President’s remark was aimed at targeting those traders who are concerned about the impact of the 2024 elections on their portfolios.
Being the largest market in the world, whatever happens in the U.S. certainly affects the entire market. It is understandable that investors are worried about the performance of the market in the current election year.
But there is a question: to what degree do the U.S. Presidential Elections affect the markets?
We decided to dig through the market performance during previous election years in the U.S. and tried to study the correlation if any.
We also address the concerns you may have regarding the impact of the 2024 elections on the markets.
Looking at the performance of the market during previous elections years can be illustrative for us to make an observation about the impact of the 2024 elections on the market.
We decided to have a close look the performance of S&P 500 — a stock market index tracking the performance of the largest 500 largest companies listed in the U.S. — throughout the previous election years.
Source: First Trust
Historical data from First Trust suggests that since 1928, S&P 500 recorded positive returns in 20 of the 24 election years. The average return for the election years was 11.58%.
For further clarity, we broke down the S&P 500 index’s performance during the tenures of the former U.S. Presidents year-wise and term-wise.
Source: First Trust
We also observed some interesting patterns regarding the performance of the S&P 500 index during a 4-year election cycle:
However, making a direct relation between the election and the S&P 500 performance would be incorrect.
The bull market in 1928 was more sentiment-driven than based on any critical evaluation; the phenomenon led to the Wall Street Crash of 1929, the most devastating stock market crash in the history of the U.S. The economic conditions led to the Great Depression when the S&P 500 reflected a negative return of 45% in 1931.
2008 saw the next worst S&P 500 return of 37% but it had less to do with the Presidential Election and more to do with the Global Financial Crisis in the Wall Street. It led to the Great Recession to contain which bailouts worth billions of dollars were deployed by governments from across the world.
Economic performance is one of the primary factors that voters look at when a country goes to elections. Every president tries their best to boost growth and contain inflation during at least two years before their re-election.
Last month, the Federal Reserve under President Joe Biden held its key interest rate steady for the third straight time in a targeted range between 5.25%-5.5% as inflation dropped to 3.1% year-over-year and the economy showed resilience.
However, other metrics don’t show relief.
As per the U.S. Bureau of Economic Analysis, real gross domestic product (GDP) grew at an annual rate of 3.3% in the fourth quarter of 2023. In fact, Q4 2023 witnessed a drastic decline of the rate of 4.9% in Q3 2023.
Source: Bureau of Economic Analysis
The market is still not the strongest, with inflation and unemployment being primary economic concerns of the voters.
The 2024 election is going to be unpredictable, and the market may turn volatile in the short-term. Analysts are nonetheless hopeful of the market performance in 2024.
The elections certainly affect the markets. But there is an array of factors such as geo-political conditions, interest rates, inflation rates, foreign exchange rates, regulations etc. that affect the market.
The impact of the elections on the markets is rather short-term. It is suggested that traders should closely observe the market during the election season but shouldn’t attribute disproportionately high importance to the elections.
The U.S. goes to elections in November 2024.
Fun Fact: Donald Trump had remarked in 2020 that the stock market will crash if Joe Biden is elected as the President. Surprise, surprise! The Dow Jones Industrial Average closed above 37,000 for the first time ever in December 2023.
This article is for informational purposes only and not intended as investment or financial advice. It contains opinions and speculations that are subject to change without notice.
The author and publisher disclaim any liability for decisions made based on the content of this article. Readers are advised to conduct their own research and consult a financial advisor before making investment decisions.