As we step into a year poised for political debates, it’s crucial to sift through the noise and distinguish it from historical patterns as it relates to investing. A noteworthy trend, consistent since 1950, reveals that the S&P 500 has demonstrated positive performance in every year during the first term of a President.

(Source: Carson Investment Research)

In the chart above, it illustrates the performance of the S&P 500 during the first year, midterm year, preelection year and then election year for each President’s first term.  The election year in each instance has been positive every time with an average gain of 12.2%.  While these statistics are not a complete thesis for investment decisions, it is interesting to see that we are approaching a part of the Presidential Cycle that has warranted bullishness in the past.

S&P 500 4-Year Presidential Election Cycle

One chart that has consistently served as a robust guide to market behavior in 2023 is the mapping of average returns of the S&P 500 over the 4-Year Presidential Election Cycle. In the chart below, the blue line illustrates the average return across all Presidential Cycles, while the red line highlights the current trajectory we are on.

(Source: Allstar Charts)

When the stock market experienced a three-month consecutive decline from August through October 2023, this trend mirrored patterns observed in previous cycles. In essence, such occurrences were within the norm. The subsequent rally from November until the year’s end also aligned with historical trends, serving as a closely monitored indicator. Looking ahead to 2024, historical patterns suggest gains may be less robust than those in 2023, but the overall outlook remains positive. As we progress into 2024 and the upcoming election cycle, our focus is on tuning out inevitable noise and relying on historical data to assess whether current developments align with established norms or deviate from familiar paths.

What about a Recession?

The much-discussed recession did not materialize in 2023. However, as we look ahead to 2024, we aim to assess the indicators for insights. The chart below illustrates the US Leading Economic Indicators, showcasing peaks in economic activity and shaded areas indicating ensuing recessions since 2000.

(Source: The Conference Board)

While this chart is of significance to us, there are a few key considerations. To start, an economic peak does not necessarily imply an immediate onset of a recession. For instance, in 2004, the LEI indicator peaked, yet the recession only manifested in late 2007. Additionally, we must account for the substantial surge in economic activity following the COVID-related lows, where a contraction was expected during the shutdown and a surge upon reopening. As of November 2023, the LEI is gradually ascending. Although recessions are inevitable, the recent upward trend in LEI indicators suggests that if this progress continues, any ensuing recession may be relatively mild.

Articles We’re Reading

Apple paper suggests company is working to catch up to rivals on AI (FT)

Home prices rose 4.8% nationally in October compared with October 2022 (CNBC)

Bristol Myers Squibb has agreed to buy cancer therapy company RayzeBio for an equity value of about $4.1 billion (Axios)

Israel’s government agreed to give Intel a $3.2 billion grant for a new $25 billion chip plant it plans to build in southern Israel (CNBC)

Market Snapshot

For the Month Ending 12/31/2023 (Cumulative Returns)1   

1Source – Morningstar, Inc. Corporate Bonds is presented as the iShares iBoxx $ Investment Grade Corporate Bond ETF. Municipal Bonds is presented as the iShares National Municipal Bond ETF. High Yield Bonds is presented as the iShares iBoxx $ High Yield Corporate Bond ETF. 10 Year Treasury refers to the  valuation of a 10 Year Treasury Note, a debt obligation issued by the U.S. Department of the Treasury. Fed Funds Target represents upper limit of the federal  funds target range established by the Federal Open Market Committee. Inflation Rate provided for the purposes of this report by the U.S. Bureau of Labor  Statistics. Unemployment Rate calculated by the U.S. Bureau of Labor Statistics. WTI Crude Oil refers to the price of a barrel of West Texas Intermediate NYMEX) Crude Oil. Gold – Spot Price relates to the valuation of an ounce of gold, as traded on the NYSE Arca Exchange. U.S. Dollar refers to the U.S. Dollar  Index (DXY). All Returns are denominated in USD (United States Dollar), unless otherwise explicitly noted.

Did You Know?

In Scotland, the “First-Footing” tradition is a unique way to welcome the New Year. As the clock strikes midnight, the first person to enter a home is considered special, bringing luck and prosperity. The ideal “First-Footer” is tall, dark-haired, and carries symbolic gifts like coins for wealth, bread for food, salt for flavor, and whisky for toasting to health and happiness. This tradition reflects the belief in starting the year with positive energy and good fortune.

Presented by the Investment Committee of Lake Street, an SEC Registered Investment Adviser

The information contained herein constitutes general information and is not directed to, designed for, or individually tailored to, any particular investor or potential investor. This report is not intended to be a client-specific suitability analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities. Do not use this report as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs and investment time horizon. Diversification does not ensure a profit or guarantee against a loss. There is no assurance that any investment strategy will be successful. Investing involves risk and you may incur a profit or a loss.