The 2024 presidential election may be one of the biggest market-moving catalysts in the next six months.
It’s too early to speculate about a potential winner, and the recent exit of President Joe Biden has added an extra layer of uncertainty to this election season. At this point, former President Donald Trump is leading Vice President Kamala Harris, the presumptive Democratic nominee, in most national polls. However, the Harris campaign has just begun, and a lot could change between now and Nov. 5.
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The remainder of the election year will bring several challenges for investors and politicians alike. Unfortunately, the S&P 500’s past performance during U.S. presidential election years suggests investors could experience some lackluster returns between now and the end of the year.
- S&P 500 performance in election years.
- 2024 election cycle chaos.
- Economic performance under Biden versus Trump.
- 2024 investing strategy.
S&P 500 Performance in Election Years
The S&P 500 has averaged a 7% gain during U.S. presidential election years since 1952. While a 7% gain is far from disastrous, it is also well short of the 17% average S&P 500 gain in the year prior to an election year. It’s also below the roughly 10% average annual total return for the S&P 500 in the typical year. Of course, it’s important for investors to remember that past performance does not guarantee future returns, and there have only been 18 presidential elections since 1952.
The federal funds interest rate is currently at its highest level in more than two decades as the Federal Reserve continues its battle with inflation. Elevated interest rates increase borrowing costs for consumers and corporations, weighing on economic growth. U.S. GDP grew 2.8% in the second quarter, but economists expect that growth rate to slow. While the chances of an imminent U.S. recession have fallen in recent months, the New York Fed’s recession probability model suggests there is still a 55.8% chance of a recession within the next 12 months.
From a sector standpoint, financial services and energy have been top performers during presidential election years since 1973. The technology sector, which has been by far the top overall performer in the past 50 years during non-election years, has been one of the worst-performing market sectors during presidential election years. The materials sector is the only sector that has performed worse than the technology sector during election years.
Investors betting the historical pattern holds true again in 2024 can increase their allocation to financial services and energy sector exchange-traded funds, or ETFs, such as the Financial Select Sector SPDR Fund (ticker: XLF) and the Energy Select Sector SPDR Fund (XLE).
Different market sectors can also outperform, depending on which candidate is leading in the polls, and it’s too early at this point for investors to anticipate a winner in 2024.
By Wayne Duggan, US NEWS Contributor
Edited by Brady Porche, US NEWS Managing Editor
July 31, 2024, at 3:28 p.m.