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An Election Year Stock Market Blog Post

By Michael Mashburn Jr.

A few years back, I read a book called “Thinking In Bets”, by Annie Duke. Annie is a world-renowned poker champion who has since parlayed her success at the tables into becoming a prolific business consultant.

In the book, she stresses the importance of making critical decisions based on probabilistic outcomes rather than emotions. She teaches you how to get comfortable with uncertainty. She acknowledges you can’t predict the future and you certainly can’t guarantee any outcomes you might desire. However, her thesis highlights not so much the end results, but rather the extensive thought process that goes into making said decisions. She emphasizes that while we may not always be right 100% of the time if we make choices based upon things like logic, experience, and probability of success while minimizing emotions that can sometimes cloud our ability to make sound judgments, then conceivably we should be able to live with the results, regardless of the outcome.

Obviously, adopting this type of mentality into our daily lives is much easier said than done.  It’s undoubtedly not an easy mindset to implement at a moment’s notice. Let’s face it. We are often influenced by our emotions when making critical decisions. It’s an easy thing to succumb to on the fly. However, even for analytical people like my father and I, this book has revolutionized the way we approach our practice in a lot of ways.  It’s helped us refine our focus on things that need to take priority and being able to live with decisions we make knowing we made those commitments because we knew it would give us the highest probability of success–win, lose, or draw.

With that in mind, I thought this would be an interesting way to approach a topic I think is relevant for all of us this year. How does the market, specifically the S&P 500 Index, perform during election years?

Aside from the endless onslaught of TV ads, campaign promises, and intrusive texts, emails, and phone calls from phone numbers, we don’t recognize that we get to look forward to this year, from a market perspective exclusively, election years are an enigma of their own.  So, without further ado, let’s look at election years from a historical perspective.

“History doesn’t repeat itself, but it often rhymes”-Mark Twain.

The Standard & Poor’s Index (originally the S&P 90) was first created in 1926. It later broadened out and was recognized as the S&P 500 in 1957. Since its inception, we have had 24 election cycles. 20 of those years ended positively (83% of the time) with an average return of (11.57%).  To put that in context, in any given year, the market is up roughly 75% of the time with a weighted average return of about 10%. So not only do we have a higher probability the market will be higher at year-end, but we have also enjoyed better average returns during these cycles. Those numbers get even better when a sitting incumbent president is in office running for re-election.

If you’re like me and you like to run the numbers on things like this, what you will find is that since 1926, no matter which party is in The White House over a four-year period, the average S&P 500 return is somewhere around 49%.

Now I’ll be the first to admit, we still have a lot of things to overcome this year.  For example, we’ve got nearly $8T, or about a quarter of the total outstanding US Government debt that will have to be rolled over and refinanced this year. We have escalating tensions overseas on multiple fronts that don’t appear to be subsiding anytime soon. We have potential supply chain shocks from the blockades in the Red Sea. The US consumer, which accounts for roughly 70% of GDP growth, has thankfully remained resilient despite numerous economic indicators telling us a different story.

I could go on, but in reality, there are always headwinds lurking around the corner in any given year; some more unnerving than others. These should never be ignored, and to a degree must be acknowledged and respected. However, the historical probabilities tell us we should have a positive outlook for the year ahead.  I don’t know about you, but when you have nearly 100 years’ worth of data telling you something, one would be wise not to “fade it” or “go against the grain” with that kind of information at your fingertips.

I’ll leave you on a positive note with one more piece I’d like to add to the mix.  It isn’t necessarily election-related, but definitely something to keep in mind that coincides with it being an election year.  Double whammy.

According to YCharts.com, when coming out of a bear market, as we did in late 2022,  and upon reaching a new all-time high in the index, which we recently did on January 19th, 2024, the average 1, 3, 5 & 10-year returns respectively are 16.19%27%58.58%, and 206%. For those of us still trying to wrap our heads around that statistic, I know I still am, that comes out to approximately a 20% annualized average return after 10 years. Unreal.

What’s important for people to understand at the end of the day, is that no matter what team you root for(red or blue), no matter how bad you might perceive things can get if the other side wins, at least from a market perspective, it doesn’t really matter.  So, here’s some ammunition to get you ready for that crazy aunt or uncle we all have at Thanksgiving dinner this year after the election.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.  All indices are unmanaged and may not be invested into directly. Securities and advisory services are offered through LPL Financial a registered investment advisor. Member FINRA/SIPC.