2024 US Presidential Election

Source: Evidentia Group

With a likely rematch between Democratic President Joe Biden and former Republican President Donald Trump set for 5 November 2024, what impact will the US presidential election have on investment markets?

Looking back over the past hundred years of returns for the US share market (S&P 500 Index), there has been little difference between the average returns during election years and the average returns for all combined years. This suggests overall market performance has been neither better nor worse in an election year than in a normal year.

However, markets dislike uncertainty. Leading up to an election — particularly one as politically charged as this one — it is normal for markets to experience increased volatility as investors speculate about the outcome and how the winning party’s policies might affect specific sectors and the broader economy. But this volatility tends to be short-lived, with markets settling down and often rallying once the outcome of an election is known and this uncertainty has dissipated.

What about the impact of a Republican or Democratic victory? Perhaps counterintuitively, neither a Democratic nor a Republican ‘sweep’ of the presidency and Congress has been better for markets historically. Markets tend to do better when both parties hold some power across the government. Again, markets do not like uncertainty, and having one party win outright control is arguably the most uncertain political outcome, as it could enable that party to make sweeping political change. Having cross-party checks and balances in place appears more likely to calm any market concerns.

While elections can cause short-term volatility and shifts in investor sentiment, medium to long-term market performance is ultimately influenced by economic fundamentals and global events. We remain of the view that in 2024, investment markets will continue to be driven by economic factors such as the number of interest rate cuts the US Federal Reserve delivers, the pathway of inflation and the ability of companies to deliver earnings growth — areas which continue to broadly move in a positive direction and offer the potential to reward patient long-term focused investors.