Kavan Choksi Discusses How Stocks Perform in Election Years

The 2024 presidential election is likely to be an important market moving catalyst. The election year can bring a range of challenges for both politicians and investors. As Kavan Choksi says, the S&P 500’s past performance during U.S. presidential election years suggests that investors may see a bit of lackluster returns in 2024. However, the good news for investors is that the S&P 500 has not declined during a presidential re-election year since 1952 and has averaged a 12.2% annual gain in re-election years.

Kavan Choksi talks about how stocks perform in election years

Even though the presidential election is just one of the several factors that impact the stock market during election years, there is a chance that investors may enjoy strong returns in re-election years like 2024. Presidents that seek re-election often “prime the pump” by choosing to implement pro-growth regulatory policies and fiscal stimulus measures in order to support the economy and the labor market. However, one must also remember that Biden is likely to have limited opportunities to add economic stimulus measures in 2024, as Republicans control the House of Representatives and have low odds of cooperating. However the majority of the spending from the 2022 Inflation Reduction Act is slated for fiscal years 2024 through 2026, and it can help support the economy and the stock market this election year.

The financial services and energy sectors have shown strong performance during presidential election years since 1973. On the other hand, the technology sector, which has traditionally excelled during non-election years, has typically underperformed in election years. Specifically, the materials sector has also fared poorly during election years compared to non-election years. Based on this historical pattern, investors anticipating a similar trend in 2024 may consider increasing their exposure to financial services and energy sector exchange-traded funds. In certain instances, the positions and policies of political candidates may drive specific market sectors, and these platforms are likely from one election cycle to another. Varied market sectors may even end up outperforming depending on which candidate is leading in the polls. Investors should keep in mind that betting on one particular sector over another for historical reasons merely due to 2024’s status as a presidential election is not a good idea.

The market’s neutrality towards politics is apparent in the short term. Basically, individuals who maintained their investments consistently enjoyed much better ROI than those who only invested during periods when a specific party held power. It is prudent to note that investing according to political convictions has historically resulted in lower performance when compared to maintaining a long-term perspective and staying invested continuously.

As Kavan Choksi says, it is better for investors to ignore any short-term volatility around the U.S. election cycle. A resilient U.S. economy and expected Fed pivot to rate cuts is likely to impact the markets more in 2024 than politics. The historic performance of stocks during election years also tends to support the potential opportunity for investors. Historically, stocks outperform their long-term average in election years, with the second half of the year typically the strongest.