The presidential election is right around the corner, and the S&P 500 and Dow Jones Industrial Average recently hit all-time highs. However, many Americans are nervous about this election’s impact on the markets, perhaps with memories of 2008 in focus.
While nobody can know what will happen for sure, historical data can help us navigate the perceived uncertainty surrounding the 2024 presidential election season. We have summarized key data points below.
Where We Have Been
Before we dive into historical data and trends, let’s consider where we have come from and how we have arrived in our current place.
S&P 500 yearly returns since 2016 are as follows:
2016: +9.54% (presidential election year)
2017: +19.42%
2018: -6.24%
2019: +28.88%
2020: +16.26% (presidential election year / Covid / can you believe it)
2021: +26.89%
2022: -19.44%
2023: +24.23%
2024: at the time of writing, the year-to-date return for the S&P 500 is +21.91% (this will change daily).
This is mentioned because it has been a wonderful time period to be a long-term investor. While we have experienced spats of volatility along the way, the long-term results have been quite favorable as we enter this election season.
Let’s also consider that, during this period, we got through COVID-19, the highest inflation in 40 years, rising interest rates, and plenty of geopolitical tensions.
Logic would dictate that a pullback of some kind could be in the cards in the future, but will the presidential election in and of itself be that catalyst?
Historical Election Year Returns & Volatility
While the S&P 500 historically has posted lower total returns in election years versus non-election years (data from 12/31/1927–12/31/2023), results have shown an average yearly gain of 11% and a median yearly gain of 14% during election years. Perhaps surprising — and not too shabby!
Historically, there has been a local spike in volatility in both equity and bond indices before and close to election days. We saw that in early October, with around 30 days until Election Day.
Of course, past performance is not indicative of future results, but historical data has its place in analysis.
October’s Reputation for Volatility
When it comes to presidential election years, there is a bit of a double whammy regarding volatility, as October tends to be the most volatile month of the year for stock markets.
Given the recent Fed rate cut, some interpretations are that it could be different this time. However, as October began, we saw volatility tick higher in the S&P 500, as measured by the VIX Index.
Post-Election Day: A Light at the End of the Volatility Tunnel?
Once traders and investors navigate through October and make it to November 5th, a dose of uncertainty becomes removed as a winner is declared.
We also see that, according to 90 years of data, volatility tends to fall sharply in December of election years, so there is always light at the end of the volatility tunnel. December also tends to be one of the better months of the year for stocks overall.
Election Outcome: Stocks or Bonds?
This question comes up a lot in financial circles, and there are varying interpretations surrounding the outcome of the election and what it could do for the financial markets.
Instead of trying to pick whether stocks or bonds are the better choices based on an election winner, having an appropriate blend of both types of assets for the long term is smart.
Election Season Mentality
There are all kinds of ways to think about what could happen during this election season and through the end of the year, and there is no shortage of opinions. Moreover, looking at historical data, there is no certainty that we can draw from.
But one thing is for certain: the long-term investing mentality should persist in our minds, regardless of election-related headlines (and there are sure to be many!).
Staying invested throughout market cycles includes presidential election cycles, and staying invested for the long term is what it’s all about.
With that said, please know that we are here as a resource for you if you have any financial questions or concerns this election season. Reach out anytime.
Take care,
Mosher Financial Advisors Management Team
Jerry S. Mosher, CFP® / Partner
Scott Dawson, CFP® / Partner
William Tom, CFP® / Partner
Jenny Giambastini, CRPC™ / Office Manager
Phone: 925-284-9470
Fax: 925-284-9492
Mosher Financial Advisors, LLC is a Registered Investment Advisor. Securities offered through American Investors Company, Member FINRA / SIPC
Stock Market Declines are Normal
By Scott Dawson, MS, CFP®
I regularly attend conferences and presentations about various financial planning topics. At a recent conference, I was reminded of some statistics about historical stock market declines in a given year. The stock market, on average, will have at least three 5% declines and one 10% decline in a year. Every three years, the stock market will decline by at least 20%.*
To put these declines into perspective, if an all equity investment account is valued at $500,000, a 5% decline is $25,000, 10% decline is $50,000, and 20% decline is $100,000. In 2008, the S&P 500 was down 37%, which is a $185,000 decline in our example.**
What does this mean?
Stock market declines are normal and expected. If the market goes down by 10% or even 20%, my thought is stocks are 10%-20% cheaper than they were. I’m a long term investor and I need to tolerate the fluctuations of the market to earn the higher rate of returns that stocks have historically offered above fixed income, which fluctuate much less.
No one can consistently predict when stock market declines will occur and how long they will last, but it’s comforting to know that declines have been temporary. Historically the stock market has always recovered. Maybe the next decline will be different, but history is on our side.
An approach to deal with the ups and downs of the stock market is to determine an asset allocation that allows you to stay the course. An asset allocation is the mix of stocks, bonds, and cash in your portfolio. It’s important that your asset allocation is based on your goals, risk tolerance, and time horizon. If normal stock fluctuations make you uncomfortable, then adding more fixed income will dampen the ups and downs of the market. Abandoning your investment strategy because of fear, the market going down, or greed, the market going up, has not been kind to investors’ long term financial health.
*Source: American Funds
**Source: Morningstar
All investing involves risk, including the loss of principal. Diversification and asset allocation do not guarantee a profit, nor do they eliminate the risk. Past performance is not indicative of future results. Investors should work with financial professionals to discuss their specific situation and investment goals