Presidential election years bring a flood of political and emotional news headlines, with the potential to shake heads — and markets. But you don’t have to let the noise catch you off guard. The more you know about how election years influence markets, the calmer you can be. 

Here are five market trends to watch for this election year — and what to know about them. 

Common market trends during election years

1. Positive returns for stocks

Looking back in history, stocks have generally done well. Since 1926, they’ve increased 11.6% annually during election years. This is higher than the average market return of 10.3% over all years. 

Historically, the market has followed this pattern:  

  • The stock market starts the year slowly
  • Market performance picks up in late summer as the election nears
  • Markets slow down again after the election 

The second half of the year has usually been better than the first half, but this may not always be the case.

2. Annual returns may be slightly below average 

Despite its positive returns, the S&P 500 has generally done better in non-election years, according to several sources.

The difference is about 0.50% lower in election-year performance — for example, 11% in an election year vs 11.5% in a non-election year. Investors may move money into lower-risk assets during election season, which could account for some of the difference. 

If investors reinvest the month after the election is determined, you could see short-term spikes or drops after Election Day.  

3. Higher volatility before and after Election Day

Election year volatility comes from stock prices moving farther or faster than usual. 

October already tends to see more market volatility nearly every year. But markets are most volatile 12 months before a presidential election and one month after. This comes from increased levels of uncertainty. Highly contested elections may cause further delays.

Generally, if the sitting president loses the election, markets have seen greater price swings. However, this impact fades over time.

4. Post-election blues

An analysis of 24 presidential elections found that the S&P 500 usually posts stronger returns — compared to non-election years — in the 6 months before Election Day. Then, the market declines somewhat during a president’s first 12 months, regardless of who wins. 

A practical reason for this trend is that over half of presidents see a recession in their first year. During recessions, companies make less money and more people lose their jobs. This tends to depress market prices. 

In other words, the election itself may not be a main driver of markets. Instead, market prices might just be responding to economic conditions that occur during an election year. 

5. Minimal impact on moderate portfolios

A moderate-risk portfolio that includes 60% stocks and 40% bonds is a popular investment strategy.

Only four presidential election years posted negative returns for this portfolio. Those years also corresponded to major events that likely had more impact than the election.

  • 1932, during the Great Depression
  • 1940, during WWII
  • The tech bubble bursting in 2000
  • 2008, during the Great Recession

Over the long-run, average annual performance on the 60/40 portfolio has been slightly higher during election years, at 8.7% compared to the average 8.5%.  

Past performance doesn’t guarantee future results  

Bear in mind that these trends, like market and economic trends, rely on past experience. Of course, past performance doesn’t guarantee future results. Each era brings different challenges and opportunities. There’s no guarantee any of these will (or won’t) come to pass, especially in our unique political landscape.

A few factors that set this election year apart include:

  • Excitement over generative artificial intelligence has sent tech stocks soaring. The S&P 500 has already blazed a 14.5% return in the first half of the year, despite lagging in past election years. 
  • The Supreme Court has handed down a historic decision on the expansion of presidential powers and immunity.
  • Markets expect interest rates to fall. This would lower borrowing costs and support the economy.

4 takeaways for markets in the 2024 election year 

Past market trends point to good news for long-term investors, but they’re not set in stone. Here’s what you should know about these trends — however they pan out.  

The Fed may still move interest rates

Historically, the Federal Reserve hasn’t been shy about raising or lowering interest rates during election years. Higher rates can fight inflation by raising borrowing costs. Lower rates can encourage economic growth by making borrowing more affordable. In fact, since 1956, the Fed has raised or lowered rates during every election except 2012. 

It’s possible the Fed could move rates again in 2024 as it continues to battle pandemic-related inflation. Though, as inflation continues to cool, it’s likely to lower rates, not raise them. Those lower rates would likely boost markets short-term.  

Sitting presidents try to spark growth

Presidents seeking reelection for their party often “prime the pump.” This means putting policies in place to encourage economic growth or lower unemployment before elections. 

However, the current president has few remaining opportunities to significantly boost the economy. First, the other party controls part of Congress. This makes passing new laws difficult. Second, given how policies “lag,” there’s little time for the incumbent to pass meaningful change before Election Day. Policy lag describes the time it takes for new policies to “kick in,” or start impacting target goals.

That said, most of the spending from the 2022 Inflation Reduction Act is planned for 2024 to 2026, and the 2022 CHIPS and Science Act of 2022 provided billions for the American semiconductor industry. Both provide support for the economy and the market. 

Who wins may not matter

One “secret” truth of presidential elections is that they might not matter for your long-term portfolio. In fact, U.S. Bank data shows that there’s no statistically significant relationship between who wins the White House and how the S&P 500 performs. That means the election outcome and the market’s performance aren’t strongly connected. 

Instead, the balance of power is what matters:

  • When different parties control the White House and Congress, short-term returns tend to rise
  • When different parties control the Senate and House of Representatives, short-term returns tend to rise
  • When the same party controls the White House and Congress, short-term returns don’t move significantly

However, the S&P 500 does seem to perform better when an incumbent president runs for re-election. Investors may expect fewer changes in policy, and markets prefer stability. 

Follow the economy

It’s easy for voters to give presidents — past, present, or future — credit or blame for economic and market performance. But wanting to assign a reason ignores an important truth:

It takes more than one person, even if it’s the president, to shift an entire market long-term. And long-term movements drive lasting financial gains. 

So, if presidential elections don’t move markets, what does?

The answer: economic factors. 

Ultimately, who wins the White House matters less to markets than how the economy performs. When markets fall before or after elections, it’s rarely because of the political race, or even the outcome. Instead, prices tend to follow economic factors like:

  • Investor fear or enthusiasm
  • A growing or shrinking economy
  • Rising or falling inflation
  • Hiked or slashed interest rates
  • Growing or shrinking corporate earnings

In short: while elections might be more exciting, the economy drives markets.  

Time in market matters more

If you’d invested in the S&P 500 in 1926, you would have earned a total return of 1,456,754% — assuming you also reinvested any dividends paid. During that time, the U.S. has fought multiple wars, changed party control multiple times, and weathered multiple recessions. You would have lost out on substantial gains if you invested only during Republican-led years or Democrat-led years.

In other words, you’ll probably see better returns just by staying put, regardless of the political landscape. As the saying goes, it’s time in the market, not timing the market, that generates long-term gains. (Also, diversify. Set up an emergency fund. And align the life you’re living to your goals.)  

So, if you wouldn’t change your investment strategy in a similar non-election year, don’t change it now. This may feel wrong, but NOT acting on panic or overconfidence is often key to keeping your finances on track. 

Stay the course to achieve your goals

Politics, like money, stirs up strong feelings, and it’s important to push past short-term discomfort to stay on track. As with any event, the impact of the 2024 presidential elections is likely to fade. 

Over the long run, longer-term economic fundamentals make a bigger difference.  

To put it simply:

  • DON’T: Allow election uncertainty, political fervor, or big emotions to distract you from a long-term financial plan. 
  • DO: Ignore the political noise. Ride out short-term turbulence, and look for the right balance of risk and diversification for you.