The quadrennial rumble of the U.S. presidential election cycle sparks curiosity — not just about political landscapes, but its potential impact on the stock market. Anxieties around policy changes and uncertainty will always simmer, but history offers a nuanced picture of what to expect for your portfolio.

Despite the drama, presidential election years haven’t been all doom and gloom for the stock market. As we’ll see, the S&P 500 — a key indicator — has averaged a respectable 7% gain during election years since 1952. (That’s slightly lower than the typical annual return of around 10%, but still indicates positive growth.) 

But that’s not the whole story! Let’s go deeper.

Bullish Re-Election Years

The curious case of re-election years: Interestingly, re-election years tend to be even more bullish. Since 1952, the S&P 500 has averaged a 12.2% annual gain in these years, with no declines recorded. 

This phenomenon could be attributed to incumbent presidents pushing for policies to strengthen their chances of winning another term.

Of the last 16 presidential election years, the S&P 500 index was up 14 of those full years, per Barchart. The two election years in the last 60 that saw the S&P 500 down are easy to understand: one dive is the global financial crisis and the other is the dot-com bubble.

• Reagan’s election in 1980 produced a 32.4% index and 6.3% for his second term election.
• In 1992, Clinton’s election gave just a 7.7% jump, but his neoliberal policies led to a great upturn in the market by 1996, which saw a 23.1% rise in the index.
• Obama’s first election shocked the market (37% down!) but his second election led to a 16% increase four years later. 
• The 2016 and 2020 elections — Trump and Biden — offered more modest jumps of 12% and 18.4% respectively.

The average return of the S&P 500 in the presidential election years studied is 10.5%. Stripping out the two crises mentioned above, the S&P 500 gained an average of 15.3%. 

Therefore: calculated from a yearly measure, the S&P 500 averages annual gains of 10.1%, which means that presidential election years outperform normal annual gains.

The Dow

While the S&P 500 shows years of outperformance on these years, the Dow Jones Industrial Average is less definitive: Counting back to 1960, the Dow was down four of the last 16 presidential election years, meaning it had a negative return. The Dow’s usual return is +5.4% over the past 16 presidential election years.

Nasdaq 100

The Nasdaq 100 includes 100 of the largest non-financial companies listed on the Nasdaq stock exchange. The index is often tracked with ETFs like the Invesco QQQ Trust Series 1 (NASDAQ:QQQ) and is heavily weighted towards the technology sector. The Nasdaq was down in two of the nine presidential election years since 1985 when the index was created. The average return of the Nasdaq 100 in presidential election years is 7.4%.

Long-Term Focus

Ultimately, experts advise against letting election anxieties dictate your investment decisions. The stock market is driven by many factors, most of which have little to do with the political circus. 

Focusing on your long-term investment goals and maintaining a diversified portfolio can help you weather any short-term turbulence.

While the historical data offers some comfort, it’s crucial to remember that every election is unique. 

A multitude of factors, including global events, economic health, and specific policy proposals, can influence the market’s trajectory.

Beyond the Averages

Looking beyond average gains, individual sectors can perform differently during election years. 

For example, the healthcare sector might show strength if healthcare reforms become a dominant campaign issue. 

Diversification across sectors can help mitigate the impact of election-related fluctuations on your portfolio.

Cautiously Bullish

The economy remains a key issue for voters ahead of the 2024 election, with a recent poll showing our economy as the top-rated issue for 73% of voters.

Data has shown presidential election years outperform regardless of who was elected. Based on the data above, the S&P 500 could lead the way in 2024, followed by the Nasdaq 100 and Dow Jones Industrial Average.

By understanding the historical trends and remaining mindful of the broader economic picture, you can navigate the complexities of election years and make informed investment decisions for your financial future.