Will the 2024 presidential election influence the stock market?

Will the 2024 Presidential election influence the stock market? On this episode of A Wiser Retirement™, Casey Smith is joined by Andrew Pratt, CFA, CBDA, to talk about how the S&P 500 performs depending on which party is in office and how the market performs with a divided Congress. They also compare stats on how the market performed when Trump and Biden were each in office.

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Summary

The S&P 500 has consistently grown in value over the long term, regardless of who is in office. Since JFK’s inauguration in 1961, the S&P 500 has posted a negative return during only two presidencies: Richard Nixon and George W. Bush. The most prudent long-term investment strategy is to stay invested no matter your political preference or who is in the Oval Office.

Example: How would you compare to the S&P 500 if you only invested during the presidencies of one political party? If you only invested when a Republican or Democrat was in office and otherwise stayed in cash, the results would be as follows (from 1950, annualized): S&P 500 +8.1%, Democrat +5.1%, and Republican +2.8%.

Does the market perform better if one party controls Congress?

The short answer is no. The market performs best with a divided Congress (1950-2023). This may sound counterintuitive, but the market likes less uncertainty, and with a divided Congress, extreme policies are less likely to be passed. The annualized returns with a Democrat President are +15.72%, and with a Republican President, +12.2%.

S&P 500 Performance: Trump vs Biden

When comparing S&P performance data between Trump and Biden, the annualized total return during Trump’s term (1/20/17 – 1/19/21) was +16%, while during Biden’s term (1/20/21 – 3/31/24), it was +11.9%. Post-election periods for both were positive. The day after the election, the S&P increased by 1.1% for Trump and 2.2% for Biden. Two months after the election (through the inauguration), the S&P increased by 6.2% for Trump and 14.3% for Biden. Pro-policy stances in certain market segments do not always lead to superior returns, as seen with Trump’s policies on financials and energy.

Focus Long-Term

Remember to trust the planning process. An investment model’s risk is factored into a financial plan, which also accounts for market cycle volatility. If you divest for a period due to political fears, it could greatly alter your long-term financial goals.

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