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How Will the Presidential Election Affect Investors?

If you’re worried about how the upcoming presidential election will affect you as an investor, take heart! Whoever is in the White House doesn’t affect you much at all.

White House Waving American Flag Presidential Election

The debates have started; the political ads are revving up; and families are already arguing politics over Sunday dinner.

Over the next four months, you will hear countless promises and lots of mistruths about what may or may not happen to investors after the presidential election, depending on who inhabits the White House and Congress in January.

And you’ll likely hear a lot about how great the stock market will be if so-and-so wins the Oval Office.

But the truth is, presidential elections actually have very little impact on the markets.

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U.S. Bank recently published a comprehensive study over 75 years which showed just that—over the medium to long term, the elections did very little for the markets.

Instead, the report noted that “market returns are typically more dependent on trends rather than election results.”

Going back to 1948, U.S. Bank reported that there were just two scenarios that led to positive returns greater than long-term average returns:

· Democratic control of the White House and full Republican control of Congress.

· Democratic control of the White House and split party control of the Senate and House.

And just one scenario ended up with positive absolute returns modestly below the long-term average: Republican control of the White House and full Democratic control of Congress.

You can see the study’s results in the following chart:

7-24 Presidential election cycles.png

Source: USBank.com

I found another study with similar results, from Morgan Stanley, which reviewed the past 23 elections since the S&P 500 Index began.

Their results in the corresponding election years:

· 19 of the 23 years (83%) provided positive performance.

· When a Democrat was in office and a new Democrat was elected, the total return for the year averaged 11.0%.

· When a Democrat was in office and a Republican was elected, the total return for the year averaged 12.9%.

This chart summarizes the markets’ gains by president, since 1928:

market returns by president 7-2-24.png

The U.S. Bank study went on to suggest that investors look at economic trends in determining the direction of the stock market. They noted that “rising economic growth and falling inflation have been associated with returns that are considered above long-term averages, while falling growth and rising inflation have corresponded to positive but below average market returns.”

7-24 chart-historical-economic-regimes.jpg

Source: USBank.com

What Will the First Year After the Election Mean to the Markets?

One of my past newsletter contributors, Jeffrey Hirsch of The Stock Trader’s Almanac, has accumulated data since 1896 and says the first year following a new president being elected is usually the weakest:

· Year after the election: +3.0%

· Second-year: +4.0%

· Third-year: +16.4%

· Fourth-year: +6.6%

Bottom line, while it’s fun to look at the statistics, the real action in the market almost always leads back to the economy and earnings. Earnings generally drive market prices. If the economy is strong and companies produce growing earnings, in general, their stocks rise.

And as you can see below, large-cap stocks—especially growth companies—are still leading the market.

U.S. Equities - Russell Indexes

IndexYTD1-Year3-Year
Large-Cap Growth20.23%34.60%34.46%
Large-Cap Value5.58%12.34%10.00%
Mid-Cap Growth5.64%16.00%-2.76%
Mid-Cap Value3.83%11.72%4.96%
Small-Cap Growth4.09%10.20%-16.11%
Small-Cap Value-1.95%9.71%-8.69%

Source: SeekingAlpha.com

So far in 2024, the following growth companies have produced the highest returns:

S&P 500 Component Year-to-Date Returns

Company
Symbol
YTD Return
1
SUPER MICRO COMPUTER INC
SMCI
188.24%
2
NVIDIA CORP
NVDA
149.47%
3
VISTRA CORP
VST
123.21%
4
CONSTELLATION ENERGY
CEG
71.33%
5
ELI LILLY + CO
LLY
55.32%

Source: slickcharts.com

With that in mind, I took a look at some of the highest-rated growth stocks, with the following results.

Company/Symbol

Price ($)

52-wk Range ($)

Analyst Rating

Mannkind Corp (MNKD)

5.09

3.17 - 5.75

Strong Buy

Hims & Hers Health Inc (HIMS)

21.42

5.65 - 25.74

Strong Buy

Freshpet Inc (FRPT)

129.00

54.60 - 132.84

Strong Buy

As you can see, two are healthcare companies and one is a pet food business. While past returns are no guarantee of future results, perhaps one of these companies will suit your portfolio strategy.

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Nancy Zambell has spent 30 years educating and helping individual investors navigate the minefields of the financial industry. She has created and/or written numerous investment publications, including UnDiscovered Stocks, UnTapped Opportunities, and Nancy Zambell’s Buried Treasures under $10. Nancy has worked with MoneyShow.com for many years as an editor and interviewer for their on-site video studios.