Good news for investors worried about the highly controversial 2024 US presidential election. History shows that stock prices tend to rise in the year before election day.
But Saira Malik, chief investment officer at Nuveen, which manages $1.2 trillion in assets, says there are problems. Meanwhile, based on data dating back to 1928, the S&P 500 SPX's average total return in presidential election years was about 10%, with the large-cap benchmark already rising by more than that between early November and the end of last year. Was.
In other words, these pre-election gains may already have occurred.
“This is an interesting statistic and one of many reasons to be a little concerned about the stock market going into early 2024,” Malik told MarketWatch in a phone interview.
Nuveen
Malik said other reasons include that markets tend to be more volatile in election years and that investors are still pricing in more interest rate cuts than the Federal Reserve is likely to deliver. He said that there were concerns about the situation. He also noted that stocks are expensive, with the S&P 500 index trading at about a 20% premium to its average valuation since 2010.
Investors also know that the 2024 election could be highly contentious. Donald Trump heads into Tuesday's Republican primary as the clear front-runner for the party's nomination, aiming for a rematch with President Joe Biden in November.
Washington Watch: New Hampshire Republican primary: As President Trump heads toward 2024 nomination, Haley seeks to turn the tide
Trump is campaigning amid numerous legal issues. Trump has been indicted in election interference cases in Washington, D.C. and Fulton County, Georgia, and was indicted last year in hush money and classified documents cases. He has denied any wrongdoing on his part and claims prosecutors are politically motivated, while repeating false claims about his own defeat in the 2020 election.
Biden faces low approval ratings, including within his own party.Ann ABC News Poll This week's poll found that 57% of Democrats and Democratic-leaning independents are satisfied with Biden's nomination, while 72% of Republican adults are satisfied with Trump as their party's nominee. It turned out that there was.
Meanwhile, concerns about political dysfunction in the United States are growing. Last year's showdown over the federal debt ceiling and the subsequent ouster of Kevin McCarthy from the House speakership underscored concerns among some investors that confidence in U.S. institutions and governance was beginning to erode.
look: What US political dysfunction means for the stock market and investors
As elections approach, the political landscape may become increasingly contentious and market volatility may increase. Malik said the volatility could increase even more if the election results become contested.
A presidential election year also means investors should prepare for an avalanche of charts and tables analyzing past market performance around the quadrennial event.
John Lynch, chief investment officer at Comerica Wealth Management, acknowledged the “risk of jinxing” that stock prices have fallen year after year when a sitting president runs for re-election, win or lose. We have highlighted the following jinxes which indicate that there is no This includes 2020, when stock prices plummeted from February to March due to the outbreak of the coronavirus disease (COVID-19) pandemic, but quickly recovered to post annual gains.
Strategas Research Partner
Going back to 1952, there have only been three times in 1960, 2000, and 2008 when the index fell annually during an election year. Lynch noted that all three were “open” election years, with no incumbent running for re-election.
Still, market performance can also say a lot about a candidate's prospects, as long as it reflects the economy. Lynch pointed out that all presidents who avoided recessions in the two years before reelection won their second terms, but all presidents who experienced recessions during that time ultimately lost.
He noted that stocks typically outperform in presidential election years when the incumbent wins. After all, a strong economy and markets likely mean that voter sentiment favors the incumbent president.
On the other hand, the pattern in years in which incumbents lose tends to involve two declines, one during the peak of the primary election in early spring and the other after the party convention in late summer.
As a result, the stock market retains seemingly strong predictive power, Lynch said.
Citing data from Strategas, Lynch said the direction of the index has informed election results in 24 presidential elections since 1928. If the S&P 500 is positive in his three months leading up to the election, the incumbent or the candidate of the incumbent party has won. Of the four times the index was wrong, the index rose, but the incumbent party's candidate still lost.
U.S. stocks rose strongly in 2023, following the so-called presidential cycle, which typically sees a strong rally in the third year of a president's term. Stocks have been strong to start the new year, but last week ended on a strong note, with the S&P 500 setting a new record for the first time in more than two years.
look: After the S&P 500 hits a new all-time high, here's what history says could happen next
The Dow Jones Industrial Average DJIA also rose 0.7% for the week to a record close, while the Nasdaq Composite COP rose 2.3% for the week as tech stocks reaffirmed their leadership.
Meanwhile, technology's strong performance may reflect consumer concerns about sustainability, Nuveen's Malik said. The company argues that a combination of cyclical risk and politically influenced volatility provides protection.
This includes a focus on stocks of dividend growth companies (those that have consistently raised their dividends over time), as well as additional benefits from trends favoring reshoring, nearshoring, and other supply chain changes. This includes focusing on a promising global infrastructure strategy.
Malik said high-dividend stocks and global infrastructure stocks have historically weathered market declines relatively well, adding that a decline is possible after the “remarkably strong” rally seen in the last two months of 2023. highlighted Nuveen's concerns about sexuality.
