Scarier than Halloween, the current presidential election is causing people on both sides of the political aisle to be frightened by the idea of their candidate potentially losing. Uncertainty is generally petrifying to investors, resulting in downward pressure on stock prices, but with less than a week until election day, the stock market is providing more treats than tricks. Sweetness has come in the form of a stock market up +20% in 2024 (up 8 out of 10 months this year), and only off -3% from its record high reached a few weeks ago. For the month, investors experienced modest declines as they braced for the election results. The S&P 500 dropped -1.0%, the Dow Jones Industrial Average -1.3%, and NASDAQ -0.5%.

Regardless of whether the red team or blue team wins the presidential election, the good news is history reminds us the end result has little effect on the long-term results of the stock market. As you can see from the chart below, over the last century, stock prices have gone up under both Republican and Democrat presidents. As Mark Twain famously stated, “History doesn’t repeat itself, but it often rhymes.” If that’s the case, past elections teach us, there is no need to fear the status quo of a Republican or Democrat president.

(Click on image to enlarge)

Source: Yardeni Research (Yardeni.com)

More recently, over the last 26 years, the stock market has been up significantly under each president, regardless of political party. Here are the results of the S&P 500 under the last three presidents:

• President Barack Obama(November 4, 2008 – November 8, 2016 – Democrat): +137%
• President Donald Trump(November 8, 2016 – November 3, 2020 – Republican): +51%
• President Joe Biden (November 3, 2020 – Present – Democrat): +63%

No matter who wins the White House, they will be inheriting a relatively strong economy. Consider the following tailwinds benefitting the new president:

• Strong Economy: The broadest measurement of economic activity, Gross Domestic Product (GDP), registered a healthy +2.8% growth rate for Q3 
• Resilient Jobs Market: The just-reported unemployment rate of 4.1% today is representative of a strong but slowing job market. The unemployment rate has climbed modestly since troughing in 2023, but unemployment is still relatively low compared to historic levels much higher.
• Declining Inflation: As I pointed out last month (see Rate Cut Adrenaline) inflation has been on a fairly consistent downward trajectory over the last two years, which has allowed the Federal Reserve to cut interest rates by 0.50% in September. Moreover, based on the current economic environment, the Fed has signaled more stimulative interest rate cuts are likely ahead – economic strategists and pundits are predicting another 0.25% cut at the next Federal Reserve meeting that occurs over the two days following the elections.
• Record Corporate Profits (see chart below): The United States economy is the envy of the world, and the reason why is evident by the 65-year chart below showing record corporate profits and GDP. If you were an entrepreneur, where would you choose to start your company? China? Japan? UK? Russia? There’s plenty of room for improvements in our country’s policies, but there’s a reason the U.S. dominates in creating the largest and most profitable multi-trillion companies in the world.

Source: Calafia Beach Pundit

One area for improvement in the U.S. revolves around our fiscal debt and deficits. Our government simply spends too much money and doesn’t collect enough (tax receipts) to cover those expenses (see chart below). Another lesson to learn from our government’s excessive spending over the last four decades is that the glut of expenditures can’t be blamed on any one political party – the slope of spending is consistently up and to the right for all serving politicians.

Source: Calafia Beach Pundit

As I have mentioned in the past, stocks do not perpetually move up forever. However, regardless of the election outcome, we know from history that up-markets (bull markets) occur about 85% of the time, if we look at the last 100 years (see chart below). Analysis by Dimensional Fund Advisors shows that from 1926 – 2023, bull markets have lasted 994 months versus much shorter bear markets of 177 months.

Source: Dimensional Fund Advisors

It is very possible that stock prices may take a breather or correct under various election outcomes, but if we follow the historic status quo, there will be no long-term reason for woe.

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