The 2024 US Presidential election enters its final stretch with the polls still tight. Stocks tend to advance after the election into year-end, as uncertainty gives way to knowing with whom we’ll be dealing with in the White House and Congress (Figure 1).
The average advance has been similar when returns were above or below 10% through October.
According to the average of the polls by Real Clear Politics (RCP), Trump is ahead by 0.3% nationally and by 0.9% in the battleground states with slim leads, within the margin of error, in five of the seven contests. If we don’t allow for toss-ups, Trump would currently have a potential 287-251 electoral vote edge, as per RCP.
Every Democratic candidate with at least 49.23% of the national vote since 1936 ultimately won. Harris is currently polling at 48.1%. Every GOP candidate with at least 47.87% of the national vote has also ultimately won. Trump is currently polling at 48.4%. 2024 is a year where late momentum or polling errors in the right states could matter.
Sometimes unexpected things happen. In 2012, the polling was very tight when Hurricane Sandy struck New Jersey on October 29. The following day President Obama came to tour the state with NJ GOP Governor Christie who gave him praise for a rapid response. President Obama’s actual vote was 2.01% higher than his support in the final poll before the election.
| Election Year | S&P 500 Election Year through 10/31 |
S&P 500 Election Year 10/31 through YE |
S&P 500 Full Election Year |
|---|---|---|---|
| 1940 | -11.1% | -4.5% | -15.1% |
| 1944 | 9.5% | 3.9% | 13.8% |
| 1948 | 7.8% | -7.9% | -0.7% |
| 1952 | 3.2% | 8.4% | 11.8% |
| 1956 | 0.2% | 2.4% | 2.6% |
| 1960 | -10.9% | 8.8% | -3.0% |
| 1964 | 13.1% | -0.1% | 13.0% |
| 1968 | 7.2% | 0.4% | 7.7% |
| 1972 | 9.4% | 5.8% | 15.8% |
| 1976 | 14.1% | 4.4% | 19.1% |
| 1980 | 18.1% | 6.5% | 25.8% |
| 1984 | 0.7% | 0.7% | 1.4% |
| 1988 | 12.9% | -0.4% | 12.4% |
| 1992 | 0.4% | 4.1% | 4.5% |
| 1996 | 14.5% | 5.0% | 20.3% |
| 2000 | -2.7% | -7.6% | -10.1% |
| 2004 | 1.6% | 7.2% | 9.0% |
| 2008 | -34.0% | -6.8% | -38.5% |
| 2012 | 12.3% | 1.0% | 13.4% |
| 2016 | 4.0% | 5.3% | 9.5% |
| 2020 | 1.2% | 14.9% | 16.3% |
|
Avg for double-digit return through 10/31 periods |
14.2% | 2.7% | 17.3% |
|
Avg for non-double-digit return through 10/31 periods |
-0.9% | 2.3% | 1.7% |
| Avg all periods | 3.4% | 2.5% | 6.1% |
Fed Meets Two Days After the Election
Two days after the November 5 election, the Fed is expected to lower rates for a second time this year. The conditions around Fed easing do matter.
When the Fed lowered rates in 1995 and 1998 in time to avoid a recession, stocks performed well. When the Fed reduced rates after events were already moving sideways, in 2001 and 2008, returns were subpar.
In 2019, the Fed could not possibly have known a worldwide pandemic would take place in 2020. We’re forecasting better than 2% US GDP growth in 2024-2026 that supports modest but broad-based profit growth. Profit growth and dividends rank among the most reliable long-term components of stock market returns.
Turning to the bond market, investors seem to be recognizing there is no obvious election result that will lead to reduced Federal deficits with some form of divided government likely to produce the lowest deficits and a GOP sweep likely to produce the largest ones.
A Trump victory may result in higher tariffs that lead to a one-time price increase on related goods while a slower pace of immigration could lead to tighter labor conditions in certain areas that either restricts output or leads to higher wages to attract workers.
Fixed income investors have lifted the breakeven inflation rate between regular and inflation-protected 5-year and 10-year Treasury notes by 0.5% and 0.3% since September 10.
When we deconstruct the 10-year Treasury yield into its component parts, we find investors are now demanding a term premium to lock up their money versus simply rolling Treasury bills for 10 years.
Parting Thoughts
The S&P 500 has risen in 13 of the past 15 election years. It has also posted positive returns during both the Trump and Biden-Harris administrations.
But elections are just part of our analysis. We expect the Fed to lower rates, and stock market leadership to fan out on profits that are both rising and broadening by sector and geography. Before long we’ll have greater clarity on the policy picture in Washington and, thus, what it means for investors.
We believe investors should use the election and time of year, in general, to engage in proactive tax and estate planning. Where suitable, investors should also use the occasion to address any gaps between their investment positioning, long-term goals, and specific circumstances.
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