By Akemi Kondo Dalvi, CPA/PFS™, CFP®
U.S. presidential elections tend to stir up anxiety and excitement about who will be the next leader of the country and the mark that leader will make on history. The uncertainty can be unnerving, but history has shown us that the stock market, as measured by the S&P 500 Index, generally greets the new presidential term with optimism.
Looking at election years spanning from 1928 when Hoover ran against Smith, to 2020 when Biden campaigned against Trump, the S&P 500 had an average positive return of 11.57% during a U.S. election year. 2024 is looking to follow pattern, with the S&P 500 up about 21% as of the close of the third quarter, and strong performance following in October.i
Historically, there were only four presidential terms that had negative market returns, namely those that ended in 1932 during the Great Depression, 1940 during World War II, 2000 during the dot-com bubble crash, and 2008 during the Great Recession.ii
Looking ahead further, the average annual return of the S&P 500 during the year subsequent to a presidential election, the market has also tended to have positive returns, averaging at a gain of 10.67% from 1929-2023. Finally, if you look at the aggregate average annual returns for each 4-year U.S. presidential term spanning from 1929 through 2023, the average annual market return remained positive at 10.28%.iii
That’s not to say there weren’t difficulties along the way. During the last century, we experienced two major recessions, several wars, a presidential assassination, the Arab Oil Embargo, Black Monday, the savings & loan crisis, the tech bubble crash, 9/11, and COVID-19, among other events. However, despite these temporary market crashes, the stock market has shown resiliency.
Historically, the overall growth of the market has exceeded temporary downturns. As investors, we will likely encounter numerous market pullbacks or corrections, but a longstanding investor can utilize temporary declines to achieve long-term success.
As we head into a new presidential term, we should be cognizant of possible legislative changes, geopolitical developments, and federal policy adjustments. Occasionally, these events may require us to revisit comprehensive financial plans, reconsider investment portfolio strategies, or update our estate planning. Please reach out to a Certified Financial Planner or CPA Personal Financial Specialist if you could benefit from a partner in your financial journey ahead.
i. https://www.spglobal.com/spdji/en/indices/equity/sp-500/#overview
ii. Dimensional, Source: S&P data © 2024 S&P Dow Jones Indices LLC, a division of S&P Global.
iii. Dimensional, Source: S&P data © 2024 S&P Dow Jones Indices LLC, a division of S&P Global.
The opinions expressed above are solely those of Kondo Wealth Advisors, Inc. (626-449-7783, info@kondowealthadvisors.com), a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, Inc. nor its representatives provide legal, tax or accounting advice.