Year In Review
2024 has been quite the year for financial markets. We began January with a lot of unknowns, including inflation, the presidential election, geopolitical conflicts and higher interest rates. Despite these uncertainties, the US stock market has performed exceptionally well year to date, and much better than most expected. In December 2023, our Market Outlook predicted that the stock market, measured by the S&P 500® stock market index, would close between 4,600 and 5,000. With the S&P 500 currently trading slightly above 6,000 (as of December 9, 2024), we clearly underestimated the strength of the US stock market. For this blog entry, we would like to focus on two topics. First, we will analyze how stock markets have historically performed six months and one year after a federal election. Given the attention of this year’s election, we think it’s important to investigate how markets typically perform after federal elections. Second, we will discuss our market outlook for 2025, including inflation, interest rates and stock market performance.
Post-Election
Some people have asked us about post-presidential election stock market performance. As depicted in the following graph, there is no clear pattern of how the stock market performs after a presidential election. Long term investment outcomes are driven by economic growth, regardless of the political party or person in the oval office.
S&P 500 Total Returns After U.S. Presidential Elections
Total returns for the S&P 500® six months and one year after election day for every U.S. presidential election from Herbert Hoover through Joe Biden.
Six Months | One Year | |
2020 Biden | 28.9% | 42.9% |
2016 Trump | 13.3 | 23.6 |
2012 Obama | 14.4 | 27.2 |
2008 Obama | −8.5 | 9.8 |
2004 Bush | 3.3 | 8.7 |
2000 Bush | -12.1 | -24.9 |
1996 Clinton | 14.7 | 32.1 |
1992 Clinton | 6.6 | 14.9 |
1988 Bush | 13.0 | 26.4 |
1984 Reagan | 10.7 | 19.3 |
1980 Reagan | 6.7 | 0.6 |
1976 Carter | -2.3 | −6.0 |
1972 Nixon | −2.8 | 0.0 |
1968 Nixon | 1.8 | −3.0 |
1964 Johnson | 6.7 | 12.3 |
1960 Kennedy | 24.3 | 32.6 |
1956 Eisenhower | 2.3 | −6.3 |
1952 Eisenhower | 3.3 | 5.9 |
1948 Truman | −7.6 | 4.1 |
1944 Roosevelt | 18.9 | 36.4 |
1940 Roosevelt | −13.1 | −8.1 |
1936 Roosevelt | −2.4 | −24.7 |
1932 Roosevelt | 24.0 | 36.7 |
1928 Hoover | 21.8 | 15.5 |
Source: Morningstar®
Past performance does not indicate future results
2025 Outlook
So far, 2024 has lacked the volatility typically seen in most calendar years. The maximum drawdown on the S&P 500 has been lower this year than the historical average. Given multiple geopolitical uncertainties, the rising cost of living inflation and remaining higher than average interest rates, we expect volatility to increase next year. In our view, this would be a normal circumstance for the stock market (we all know it can’t always go up). In addition, we think that bonds will play a stronger role within investment portfolios. One of the best predictors of bond returns are the actual yields when the security is purchased, called the starting yield. If bonds can produce returns of 4 to 5% annually (or more), this would likely help the overall portfolio as well as dampen some of the potential volatility. As for equities, it is always important to keep things in perspective. The S&P 500® has performed very well in 2024 after rising just over 24% in 2023. We find it unlikely that next year’s returns will be as strong. However, given the current resilience of corporate earnings, continued low unemployment and positive consumer spending, we be believe single-digit equity returns in 2025 are a realistic forecast.
Conclusion
Staying invested is important. More so than any other criteria, staying invested and not trying to time the markets contributes towards positive investment outcomes. The presidential election this year was intense. It is unclear how any of the new proposed policies will impact the business environment. However, investors should stay the course with their long-term investment plans. As the legendary Wall Street investor Art Cashin once said, “You never bet on the end of the world, that only happens once, and the odds of something that happens once in an eternity are pretty long."
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
All investing involves risk including loss of principal. No strategy assures success or protects against loss.
Stock investing includes risks, including fluctuating prices and loss of principal.
Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.
The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.