How Markets Regard Democratic Incumbents

Jeff Buchbinder | Chief Equity Strategist

Additional content provided by Colby Hesson, Analyst.

The 2024 election is right around the corner. The recent victories of Former President Donald Trump at the Iowa and New Hampshire primaries have moved Election Day closer, as it seems that the two candidates have been chosen earlier than usual, setting the stage for a contentious rematch of the 2020 race.

But this time, Joe Biden will be the incumbent. What could that mean for the stock market this year? Diving into the data, first, we find the S&P 500 performs well during election years. Since 1948, the S&P 500 has finished election years with an average return of 6.9%. Next, note that during election years when an incumbent is running for re-election, stocks have been higher each time since 1950 (10 out of 10 times), gaining an average of 12.5%. This is a small sample size for sure, but noteworthy still. Also consider that the last time a presidential candidate ran for re-election was in 2020, when the S&P 500 rose 16.3%.

Presidential Re-Election Campaigns Tend to Be Good for Stocks

Bar chart depicting S&P 500 performance during election years since 1948, with an average return of 6.9%, as described in the preceding paragraph.

Source: LPL Research, FactSet 01/29/24 (Data back to 1948)
Disclosures: All indexes are unmanaged and cannot be invested in directly. Past performance is no guarantee of future results.
The modern design of the S&P 500 stock index was first launched in 1957. Performance back to 1950 incorporates the performance of predecessor index, the S&P 90.

Diving even deeper, we can break out how both Republicans and Democrats fare. This brings on another favorable historic trend for the S&P 500, as Democratic incumbents have a higher average return during election years than their Republican counterparts. Outside of the 2008 financial crisis, however, returns between the two parties are very similar. In other words, the stock market might be more likely to respond to the economic cycle than party politics. In general, that is the way these go, which means do not let politics disrupt your long-term investment plan. Corporate America is resilient and can grow profits and pay dividends in just about any political environment.

Historical trends do help make the case for stocks to enjoy a promising 2024. But, of course, past performance is no guarantee of future results. Still, the fact that these performance trends have been consistent tailwinds for stocks over time is notable, through periods of high inflation, rising interest rates, and recessions.