Every four years, we field questions about our expectations of stock markets due to the Presidential election. It is natural to wonder how a president from either the Republican or Democratic party will affect the markets. Because 2024 is an election year, we thought it would be worthwhile to look back at the history of the stock market and investigate how the it has performed when different parties held the position of President of the United States.
The following graphic, sourced from Dimensional Fund Advisors, depicts market performance over different administrations. As can be presumed, the graphical representations in blue are for Democratic performance, while red is for Republican.
Unsurprisingly, given the history of the market, most presidential terms posted positive returns, despite the party in control. However, there have been some outliers during both Republican and Democratic terms. Upon further investigation, (while keeping historic events in mind), many of these outliers could be explained by economic developments that happened during the term, as opposed to the party in control.
For example:
1929-1932: Great Depression
1933-1936: The New Deal
2001-2004: “Dot Com Bust” and conflicts in the Middle East
2005-2008: The “Great Recession”
Of course, it may be argued over any of these periods, the President in charge helped influence market conditions to allow for growth (or lack thereof), but we contend many other factors can be at play.
Although there is not a predictable pattern in market returns concerning the winning party of the Presidential election, we also wanted to observe whether the uncertainty of an election would offer an opportunity to “time” the market. The graphic below shows the S&P 500 returns during an election year and the subsequent returns after the election:
There are instances when the market’s return before and after the election varied materially but on average, there wasn’t much difference between the two. Therefore, we don’t believe predictions of the 2024 Presidential election should be considered in the development of long-term financial plans, either by predicting the election or timing it. We also do not see any predictable patterns in either case. Also, with only 24 elections over almost 100 years, the data would not be statistically significant.
Instead, unless there is a change in personal circumstances, we continue to believe clients should stick to their long-term financial plans.