As the presidential election approaches, many investors wonder about its potential implications for the stock market. Historical data suggests that the period leading up to a presidential election can have a significant impact on the stock market until November 2024.
According to Goldman Sachs, the S&P 500 has experienced an average increase of 4% in the 12 months preceding a presidential election since 1984. While this may seem like modest performance compared to the annual average of 9%, it is important to consider the context.
The stock market faced challenges in certain election years. For instance, in the year 2000, the S&P 500 fell by 10% as markets anticipated an impending recession in the early 2000s. Similarly, in 2008, as the country headed into the 2007-2009 recession, the S&P 500 dropped a significant 39%.
However, there have also been outstanding election years that yielded positive results for investors. In 2020, despite a contentious race between former President Donald Trump and President Joe Biden, the S&P 500 experienced a gain of approximately 16%.
As the 2024 presidential campaign heats up, the economy has already emerged as a key concern for voters. In a poll conducted by the New York Times and Siena College across six battleground states, 57% of registered voters expressed that economic issues play a crucial role in their decision-making process. Additionally, 81% of respondents rated the economy as either "fair" or "poor," while only 19% considered it "excellent" or "good."
A recent CBS News poll also highlighted voters' perspectives on their financial well-being based on the election outcome. While 18% of likely voters believed they would be better off financially if Joe Biden wins, a larger portion of 45% believed they would be better off if Donald Trump wins.
Regardless of the election result, economic growth is expected to slow down, potentially leading to lackluster performance in the stock market. Recent quarters have witnessed modest single-digit growth in real gross domestic product (GDP), but this trend is likely to decelerate due to the impact of higher interest rates. Companies are already observing signs of weakening demand, resulting in disappointing profit outlooks and share price volatility.
Considering the historical average, it is possible that the market will see marginal gains over the next year or so. However, investors should remain vigilant and be prepared for fluctuations and uncertainties in the stock market during this election period.
