In the immediate aftermath of the 2024 presidential election, U.S. equities soared on Wednesday, November 6, with the S&P 500^® up 3%, while small caps surged even higher, with the S&P SmallCap 600^® up a substantial 6%. Subsequently, on Thursday, November 7, the much-anticipated Fed rate cut of 25 bps came to fruition. With two previously uncertain macro events in the rearview mirror, the equity market sighed in relief, as VIX^® plunged to below the 15 handle, and the S&P 500 marked its 51^th record closing high of the year on Monday, November 11.

As we look ahead to the rest of Q4 2024, we can look to history to understand how equity markets typically reacted post-presidential elections. Looking back over 60 years, the S&P 500 rose in 13 out of the past 16 fourth quarters following a presidential election, or 81% of the time.

Turning our attention to smaller caps, albeit with a shorter history, Exhibit 1 illustrates that the S&P 600 rose in 6 out of the 7 fourth quarters following a presidential election since 1996, and it outperformed the S&P 500 in 5 of those quarters. Q4 2020 was a notable example, with a gain of 31% for the S&P 600. As of Nov. 11, 2024, the S&P 500 was up 4% and the S&P 600 was up 8% QTD.

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While U.S. equity markets have typically rallied following a presidential election, the bond market’s movements have historically shown less of a directional trend, as shown in Exhibit 2. Looking back 60 years, 10-year U.S. Treasury yields increased in 9 out of the past 15 fourth quarters in presidential election years, or 60% of the time. A noteworthy decrease was in Q4 2008, when the market witnessed an extraordinary decline in yields as investors sought the safety of bonds amid the depths of the Global Financial Crisis. However, yields consistently increased following the last three elections, especially in 2016, upon rising inflation expectations and anticipated Fed rate hikes.

This year is no ordinary election year for bond market participants, as even though the Fed has cut rates twice, 10-year U.S. Treasury yields have increased and are up 50 bps QTD, perhaps due to lingering inflationary concerns that have been exacerbated by anticipated Trump policies, including tax cuts and tariffs.

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Another oddity of this election year for the bond market is a yield curve that has begun to disinvert, as measured by the spread between 10- and 2-year U.S. Treasury yields in Exhibit 3. Since 1976, there have been only two presidential election years with inverted yield curves that subsequently disinverted. The first occurred in 1980, when the Fed was hiking rates to battle rampant inflation, and the second was in 2000, when the Fed was also raising rates to fight inflation during the dot-com boom.

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The disinversion of the yield curve has been a traditional harbinger of a recession, as seen in 1980 and following the bursting of the tech bubble in 2001. This election year was also the first time a Republican contender beat a one-term Democratic president since 1980. Whether 2024 will follow in the footsteps of history remains to be seen.

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