Published on January 24, 2024

Investing During an Election Year

The primaries and caucuses have just started, and the fireworks are already exploding ahead of the 2024 U.S. presidential election.

Every four years, Americans are treated to an added dose of political drama in the race for what many consider the most powerful office on earth—the U.S. presidency. But this year, there is an added sense of turmoil as former president Donald Trump tries to win back the office he lost four years ago.

Who are the candidates and what are their economic platforms?1

Investing During Election Year Fund Flows: Democrats

  • Democrats Party Candidates

    • President Joe Biden. The incumbent president is facing little opposition within his party despite being the oldest president in U.S. history. He would likely continue “Bidenomics” and push for increased wealth taxes if re-elected.

Investing During Election Year Fund Flows: Republicans

  • Republican Party Candidates

    • Former President Donald Trump. The Republican front-runner is currently facing disqualifications from several states due to pending criminal cases. He seeks to restore the country’s energy independence by drilling more oil and is the top choice among Republican voters to manage the economy.2
    • Nikki Haley. The former UN Ambassador and governor of South Carolina would move welfare benefits to the state level and eliminate federal gas and diesel taxes.

Investing During Election Year Fund Flows: Independents

  • Independent Candidates

    • Robert F. Kennedy Jr. plans to cut military spending instead of domestic spending, as well as reform the tax code to prevent corporations from buying single-family homes.

Risks to Investing During an Election Year

With Trump leading all polls for the Republican candidacy, the 2024 election is shaping to be a repeat of 2020, with bombastic political rhetoric and policy promises. These concerns may lead to short-term market fluctuations and drive investors to less risky vehicles. From 1992 through 2022, average flows into money market funds increased in the year up to and the year of the presidential election.

Average Net Fund Flows by Year of Presidential Term (1992-2022)

Investing During Election Year Fund Flows: Average Net Fund Flows by Year of Presidential Term (1992-2022)

Source: Joseph, T. (2023, November 20). How to invest during an election year. Finimize.

However, while there may be increased jitters when investing during an election year, the impact on long-term investments is often minimal. As measured by the CBOE Volatility Index, or the VIX, market volatility ended 2020 at 22.75, just a tad higher than the historical average of 21—even as the world was recovering from the global pandemic.3

Investing During an Election Year

Over the last 30 years, there have only been two election years where the S&P 500 posted negative returns: 2008, during the Great Financial Crisis, and 2000, during the crash of the Dot-com Bubble.

Election Year President Elected S&P 500 Index
Total Return
2020 Biden 18.4%
2016 Trump 12%
2012 Obama 16%
2008 Obama / Global Financial Crisis -37%
2004 Bush 10.9%
2000 Bush / Dot Com Bubble -9.1%
1996 Clinton 23.1%
1992 Clinton 7.7%
1988 Bush 16.8%
1984 Reagan 6.3%
1980 Reagan 32.4%

Source: Barchart. (2023, December 26). Twitter.

Incumbents, Republicans, Democrats. Does it matter?

President Biden recently released a video showcasing returns since he was elected and mocked former President Trump on market performance during his tenure. Market returns matter to voters, as many view stock performance as a gauge of the country’s economic health.

However, a closer look at the data shows that returns during Trump’s administration outperformed Biden. While the S&P 500 gained 37.4% during Biden's first year in office—the best one-year market return under a president since Harry Truman in 1945—the country was amidst an economic recovery following the COVID-19 shutdown. Then, in 2022, the S&P 500 dropped approximately 19%, the most significant annual drop since 2009. Since Biden took office, the market has risen 25.9%. However, during a similar period for Trump, the return was 42.3%, while former President Barack Obama bested both Trump and Biden with a gain of 48.6%.4

Despite these solid returns irrespective of the political party capturing the presidency, nearly half of investors believe the election will impact market performance.5

Navigating Markets and Investing During an Election Year

Historical data may paint election years as a boon for investment, but this year's nuances demand a thoughtful approach, with professional advice being paramount.

Elections are but one variable in the market maelstrom. Geopolitical events, inflation, Fed policy, and investor sentiment hold equal sway. Predicting market performance during any year remains an inexact science and is no different when investing during an election year.

Sources:

  1. US Supreme Court to hear Trump appeal of Colorado ballot ... (n.d.).
  2. Fedor, L., & Xiao, E. (2024, January 7). Republican voters back Donald Trump overwhelmingly to manage US economy.
  3. CBOE volatility index: VIX. FRED. (2024, January 5).
  4. Biden’s strong stock market still trails Trump’s - Axios. (n.d.-a).
  5. The beginning of election season raises the risk of emotional investment decisions. Nationwide Financial. (n.d.).

See the private funds that are navigating the economic landscape ahead of the presidential election.

For financial advisors only.