Election years often bring strong stock market returns, with the S&P 500 historically averaging a 10%-20% total return since 1928, according to analysts. The third year of a president’s term is particularly notable, showing a median return of 18.08% over the past 95 years. The fourth year also shows promise, with an average return of 9.5% and a 75% chance of positive gains.
While the entire year can be volatile, the third quarter typically stands out, averaging a 5.21% return, which accounts for about 70% of the year’s average gain. However, election years since 1928 have also seen an average annual drawdown of 14.96% for the S&P 500.
Seasonal trends within election years show that the first half is usually range-bound with lower returns, whereas the second half, particularly Q3 and Q4, yields stronger returns.
For a Democratic President, the Dow Jones Industrial Average (DJIA) historically underperforms, while sectors like Energy, Healthcare, and Financials might see gains. Conversely, under a Republican President, sectors such as Cyclicals, Technology, and Communication Services are likely to outperform.
Equities tend to be strongest during election years, with small-caps historically outperforming large-caps. Value stocks might lag throughout the year but generally finish stronger than growth stocks.
Looking ahead to 2024, analysts predict a High-Level Trading Range (HLTR) in line with historical election year trends, expected to continue until the November election. The firm’s year-end price objective for the S&P 500 is set at 5,050.
