Clients Already Experiencing Election Year Jitters

Barring a surprise at the Democratic National Convention in Chicago in August, voters will be “treated” to a rematch of the 2020 presidential election between President Biden and former President Trump.

This isn’t a political column so there won’t be endorsements of either candidate, but data confirm voters aren’t over the moon about the aforementioned choices. For example, a January poll from Decision Desk HQ and The Hill indicates 59% of registered voters queried consider themselves “unenthusiastic” about the Biden/Trump sequel.

A Reuters poll conducted the same month notes two-thirds of those surveyed believe it’s time for someone new atop both parties’ tickets. At least there’s clarity regarding the top choices for president and financial markets do like clarity. That could buy markets a few months’ worth smooth sailing before we get into the summer months when each poll will be analyzed and dissected to the point of tedium.

That’s also reminder to advisors that many clients, regardless of how actively they trade on their own or how frequently they consume financial and political media, are already feeling pensive about 2024 elections.

Electoral Anxiety Abound

In a “normal” election year, clients typically ponder how electoral results will affect their portfolios and their right to do so. For a variety of reasons, those concerns are legitimately amplified this year. Those factors include the age of both candidates, worries about President Biden’s mental fitness and the various legal cases hanging over President Trump.

Believe it or not, those factors are among the reasons some market participants are more concerned about the election than when the Federal Reserve will lower interest rates and inflation.

“Investors are especially concerned about how this election could impact the markets,” notes Michael Townsend of Charles Schwab. “In Schwab's most recent Trader Sentiment Survey, released two weeks ago, 42% of active traders surveyed said that they thought the presidential election would have the greatest impact on the stock market in 2024. By comparison, the two dominant topics in the financial world over the last three years, the federal funds rate and inflation, came in second and third, respectively, in that same survey.”

Advisors can be of service on at least one front when it comes to quelling election year anxiety. Some clients are apt to get wrapped in the day-to-day minutia of presidential polling, but as Townsend points out, those polls measure national popularity. Like it or not, that’s not how presidential elections work in this country.

The electoral college is what matters. In 2020, Biden garnered 306 electoral votes to Trump’s 232, meaning 37 electoral college votes would need to flip for the result to be different. In other words, political pundits are monitoring polling from Arizona, Georgia, Michigan, Nevada, North Carolina, Pennsylvania, and Wisconsin and, to a lesser extent, Minnesota and New Hampshire, for insight regarding potential outcomes. Neither candidate needs to win all of the first seven states to win the election, but Trump could make things interesting by reclaiming Arizona and Georgia and flipping Nevada as that trio features a combined 33 electoral college votes.

Market History in Presidential Election Years

The S&P 500’s 18.4% gain in 2020 was probably something of an outlier due to COVID-19 bear market being so brief and the subsequent rebound being so intense, but stocks typically perform well in election. As Schwab’s Townsend points out, the S&P 500 averaged a 7.5% gain in presidential election years dating back to 1928.

History also shows that the best year for the S&P 500 in a president’s four-year is the third year followed by the fourth.

“The other good news about the markets in presidential election years is that they have rarely declined. Since 1952, markets have only declined in a presidential election year three times―1960, 2000, and 2008,” concludes Townsend. “Interestingly, all three of those years were an ‘ope’ presidential election, meaning the incumbent was not running for re-election. Even though we know that past performance does not guarantee future results, the market has risen in 13 consecutive presidential years when there was an incumbent running for re-election, regardless of whether he won or lost the race.”