Here's How the Market Performs During Election Cycles

In the last two weeks, markets absorbed a series of significant events, including an assassination attempt on Donald Trump, his subsequent nomination for POTUS at the RNC, President Biden ending his reelection bid, the initial wave of second quarter corporate earnings reports, a major technology outage, and substantial Fed commentary.? Wow, that’s a lot!

Given all of these events, the S&P 500 is down about -3.6% (as measured by the ETF SPY) over that time period.? It is slightly negative for the month (-0.75%).? Meanwhile, the small cap stocks have been on fire.? The Russell 2000 (IWM) is up almost 8.3% for the month to this point.? Is this a sign of change, or just some needed consolidation on the markets???? ?

Election Odds: With over 100 days until the November elections, odds of a Republican POTUS victory rose by 8.4% to 68.9%, and the likelihood of Republicans regaining control of the Senate is even higher. Full Republican control of DC seems the most probable outcome (note, this was before President Biden dropped out of the race).?

If you have questions about the election and how it will affect future market returns, here is some data regarding how markets have performed with the two political parties historically.?

This chart goes back to the 1960 election, and as you can see, markets tended to be positive in both regimes over time.? Only two terms have seen negative returns (Johnson, D and GW Bush, R).?

What if you only invested during Republican or Democrat terms since 1960?? The results would not have been very good.?

As you can see from the chart below, staying invested through both D and R regimes would have led to much better results.?

Historically, higher average annualized returns have occurred during a divided Congress, where one party controls the House or Senate and the other party holds a majority in the second chamber. Lower returns have come during Democratic majorities in both the House and Senate, while higher returns have taken place under Republican control of both congressional chambers. In any case, the market has historically been positive under all six government compositions.

Under the current government of Democratic president and divided Congress, the S&P 500 has advanced 36.85% (28.69% annualized) between January 3rd, 2023–when this current Congress was sworn in–and March 31st, 2024, outperforming the 15.72% annualized return historically generated during this legislative formation.

We will touch more on the election as it gets closer, but I thought this data would be good to keep in mind.

Please DM me to learn how this data impacts your investments.

Sources: Ycharts, Taiber Kosmala & Associates

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