As the election approaches, many investors are weighing how outcomes might impact the markets depending on which candidate wins. While the president’s economic influence is often debated, the roles of the Senate and House are also significant from a historical perspective. The chart below shows annual stock market returns based on political party control, including scenarios of gridlock in Washington and one-party control.
(Source: JP Morgan)
Our perspective on this chart is that while political parties can influence the economy—and by extension, the markets—historically, markets have performed well under a range of government configurations. With the news cycle often sensationalizing potential election outcomes, it’s helpful to take a step back and recognize that markets have historically shown resilience across various political scenarios.
Yearend Rally Intact?
As we approach the end of 2024, we’ve reviewed the market’s performance over the first 202 trading days, comparing this year’s rally to similar ones in the past. The chart below highlights that this rally ranks as the 13th best start to a trading year at the 202-day mark. It also shows the top 20 rallies at this point in previous years and how they progressed through the remainder of the year.
(Source: Charlie Biello, Creative Planning)
Of the 19 instances, 17 ended the year with positive returns, with only two negative years posting modest declines of -1.4% in 1943 and -1.8% in 1983. This chart suggests that market strength early in the year typically continues through year-end. Unless there’s a significant shift in market sentiment or an extended contested election, 2024 could see further gains through December.
Federal Deficit
Although the two presidential candidates have differing policies, a shared and growing concern is the U.S. federal debt—an issue that the next president will need to effectively address. If fiscal spending continues to rise, this concern will only become more pressing, as reflected in the chart.
(Source: Federal Reserve Bank of St. Louis)
The U.S. debt ceiling is currently suspended but will automatically be reinstated in early January 2025. When this happens, the U.S. Treasury will be unable to issue additional net debt until Congress either raises or suspends the ceiling again. However, spending obligations remain, and the government continues to run structural deficits due to long-standing policies. To meet these obligations, the Treasury must rely on the Treasury General Account (TGA). If the TGA runs out of cash, it could lead to defaults on critical payments like Social Security, Medicare, and Defense. In short, this issue will only grow more urgent if it isn’t addressed soon.
Articles We’re Reading
Slowing big tech profit growth starting to chip away at perceived invincibility (Bloomberg)
ECB must stay nimble on rates because of weak economy, Knot says (Yahoo)
Microsoft to consider bitcoin investment in December, despite board opposition (Yahoo)
CEOs of Goldman and Morgan Stanley both say they expect more dealmaking in 2025 (Reuters)
Market Snapshot
For the Month Ending 10/31/2024 (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?
The first U.S. presidential election took place in 1788-1789, and it was a rather unique event! George Washington was elected unanimously by the Electoral College, receiving all 69 electoral votes. However, back then, there were no political parties, and the concept of campaigning as we know it today didn’t exist. Instead, Washington was so popular that he was basically drafted into the role. To this day, he remains the only president to receive 100% of the electoral votes in an election!
Presented by the Investment Committee of Lake Street, an SEC Registered Investment Adviser
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