Wall Street loves to portray Presidential election years as positive for the stock market — yet the truth is, the stock market can be unpredictable surrounding elections, explains Jim Stack, money manager, market historian, and editor of InvesTech Research.
A wide variation in market performance and volatility underlie an “average” election year. On average, Presidential election years have seen a +7.4% gain in the S&P 500. However, a few years in history have seen the S&P 500 plummet into correction or bear market territory.
The 2000 and 2008 Presidential election years were anything but positive. If you were fully invested in 2000, a 10% decline would have defied any expected, average, election-year gains. This correction may seem minor, but it was just the beginning of a 2.5-year bear market that took the S&P 500 down almost 50% before it bottomed.
Similarly, the 2008 bear market resulted in an almost 40% loss in the election year alone, but the S&P 500 continued to fall before hitting bottom. That made the total bear market loss during the 2007-2009 period more than 56% — over half your portfolio. While 2024 has proven to be a positive outlier so far, the year is only half over and anything can happen heading into this contentious election.
Meanwhile, the mainstream media doesn’t tell you that non-Presidential election years actually have slightly higher average returns at +7.8% than Presidential election years.
As such, this year could go in any direction. Remember, the market can be more volatile than portrayed by the “average” election year. And if 2024 ends up being a truly average election year, the market would require a notable pullback.
In today’s economic, monetary, and market environment, we don’t want to bet the farm that the S&P 500 will end up with better than the “average” Presidential election year returns.
