Election 2024: What It Means for the Economy & Stock Market

Check out our September 4th webinar Election 2024: What it Means for the Economy & Stark Market hosted by David Silver, CFP®, CEPA®, Drew Allen, CFP®, RICP®, CEPA, ChFC®, CLU®, and Matthew Harbert, CFA from Instrumental Wealth.

Play the video recording, or see the takeaways for each section below organized by section & topic. Each topic has screenshots from the presentation.

Table of Contents:

• Economy & policy (01:55)
  • Overview of the 2024 election dynamics
  • Potential policy changes & economic implications
  • Key economic indicators & challenges
    
    
• Market performance & elections (18:24)
  • Historical market performance during election years
  • Market behavior leading up to & post-elections
  • Long-term market trends across different administrations
  • Impact of divided government on market returns
  • Asset class performance over previous two presidencies
    
    
• Common investor misconceptions (28:12)
  • Market preference for specific parties
  • Presidential policies can be used to predict markets
    
    
• Q&A (36:17)

Economy & policy (01:55)

All graphs and charts are for illustrative purposes only.

Overview of the 2024 election dynamics

• The primary season started in January and has already delivered surprises, including President Biden withdrawing from the race.
• The battle for Congress is tight - Republicans need to pick up two Senate seats to control it, while Democrats need five seats to take control of the House.
• To win the presidency, 270 electoral college votes are required out of 538 total. In 2020, Biden won 306 votes, so Trump would need to gain 38 votes compared to his 2020 performance to win.

Potential policy changes & economic implications

• The biggest risk is likely a lack of fiscal conservatism from either candidate, potentially leading to further deterioration of U.S. federal finances and debt.
• Higher taxes could be implemented to offset the growing debt burden, regardless of which party wins.
• The Tax Cuts and Jobs Act of 2017 is set to expire, giving the next administration a chance to reset tax policy. A Republican administration would likely try to make the expiring income tax provisions permanent, while a Democratic administration might extend some provisions while tightening estate tax rules.

Key economic indicators & challenges

• The federal deficit and national debt as a percentage of GDP are projected to increase regardless of which party wins, though the increase would be more significant under Republican tax policies.
• The U.S. economy is currently in the late stage of the economic cycle, with forecasts being pushed back due to better-than-expected economic data.
• There's a potential for decreased tax receipts to the Treasury if an economic slowdown occurs, which could impact policy decisions and potentially lead to increased government spending and stimulus measures.

Market performance and elections (18:24)

All graphs and charts are for illustrative purposes only.

Historical market performance during election years

• Returns have typically been lower during election years compared to non-election years.
• Volatility has typically been higher during election years.
• Some presidential election years have been particularly impacted by historical market events unrelated to the election (e.g., 2000 tech bubble, 2008 financial crisis, 2020 pandemic).

Market behavior leading up to & post-elections

• Markets tend to perform lower in the first and second quarters of election years due to uncertainty.
• Performance significantly improves in the third quarter as more clarity emerges on candidates' policies and potential winners.
• After election day, markets typically show positive performance in the 100 days following, as uncertainty is cleared up.

Long-term market trends across different administrations

• The S&P 500 has shown consistent growth in value regardless of who is in office, going back to 1961.
• Only two presidencies since 1961 had negative returns for the S&P 500: Richard Nixon and George W. Bush.
• The chart demonstrates that over the long term, markets have grown regardless of the political party in power.

Impact of divided government on market returns

• The highest returns have occurred when Congress was divided, regardless of which party holds the presidency.
• Markets have historically been positive, regardless of the composition of government.

Asset class performance over previous two presidencies

• Equities performed well under both Trump and Biden administrations, with the exception of emerging markets.
• Bond indexes increased under Trump but decreased under Biden, largely due to the Fed's aggressive interest rate hikes.
• Commodities were the only negative asset class under Trump but the top-performing under Biden, influenced by macro forces rather than policy.

Common investor misconceptions (28:12)

All graphs and charts are for illustrative purposes only.

Market preference for specific parties

• Investors often assume markets perform better under their preferred party, but historical data shows this assumption is flawed.
• A portfolio invested only during Republican presidencies (1950-present) would have yielded a 2.8% annualized return, while one invested only during Democratic presidencies would have yielded 5.11%.
• A portfolio that remained invested regardless of the party in power would have significantly outperformed both, with an 8.05% annualized return, growing $10,000 to $3.15 million compared to $77,700 (Republican-only) or $405,000 (Democrat-only).

Presidential policies can be used to predict markets

• Using the energy sector as an example, you can see that presidential policies don't reliably predict market performance.
• Under Trump, who supported traditional energy, the S&P 500 Energy Index fell 40% while the Global Clean Energy Index rose 275%.
• Conversely, under Biden, who supported clean energy, the S&P 500 Energy Index nearly doubled while the Clean Energy Index fell 50%.
• Macro forces such as supply, demand, and interest rates drive market performance more than presidential policies.

Q&A (36:17)

• What plans does Instrumental Wealth have if either candidate wins? Do you have different plans?
• What are the probabilities of what's going to take place with the economy depending on if there's a Democrat or a Republican in the White House?
• Given the rise of prediction markets, will the market react differently this time?
• What impact did COVID have on the market results?

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