What the 2024 US election could mean for your investments

By 5 November 2024, US voters will have cast their ballots to elect a president, all 435 representatives in the House, 34 of 100 senators, and 11 state governors. 

That adds up to a lot of campaigning and the coming year will see a flurry of key events. Caucuses and primaries to help states choose their presidential nominees will kick off on 15 January, and final nominees from each party should be clear by 12 March.

As we write, most pundits agree that it's shaping up to be another Biden v Trump standoff. But what will it all mean for the stock market and how might the final outcome affect your investments? 

Read on to learn how the 2024 US election could affect markets. 

The US economy has continued to grow through all 46 presidencies to date

The chart below shows nominal US gross domestic product (GDP) in billions of US dollars from 1930 to 2018, with data recorded until the third quarter of 2023. 

Source: JP Morgan

The key takeaway from this is that US GDP continues to rise over time, no matter who the governing party is.

That said, with every election, there’s an inevitable effect on the stock market, and, though past performance is no guarantee of future performance, equities have historically underperformed in an election year. 

On reviewing S&P 500 performance from the 1930s onwards, US Bank found that equities averaged less than 6%. By comparison, in a non-election year, equities typically showed returns of about 8.5%.

Similarly, bonds averaged around 6.5% in an election year compared to around 7.5% in a non-election year. 

Naturally, there are several factors that can affect stock market performance. 

When looking at the historical record for markets in the aftermath of presidential elections, US Bank found that after an election, stock market returns tend to be slightly lower for the following year, while bonds tend to outperform slightly after the election. 

While it seems to make little difference which party takes office, the White House changing hands can have more of an affect. In fact, when a new party comes into power, stock market gains averaged 5%. However, when the same president is re-elected or if one party retains control of the White House, returns were slightly higher, at 6.5%.

If Biden is re-elected, we could see lower market returns

Biden has plenty of reasons to be optimistic about his chance of re-election. The economy has gone from strength to strength under his leadership. The labour market is also in good shape and inflation has eased sharply.

Meanwhile, market returns haven’t fared quite as well as the strong economy may lead you to believe.

Schroders have revealed data showing that if you had a portfolio holding of 60% equities, 30% 10-year US Treasury bonds, and 10% cash, your returns since the start of Biden’s presidency would be 8.5%. Without the help of the “Magnificent Seven” high-growth tech companies, this result would have been considerably lower.

By comparison, at the equivalent point in Trump’s presidency, you’d have experienced returns of 35%. 

If Biden were to win a second term, the situation may not improve. In fact, Schroders’ data suggest that market returns tend to be lower under returning presidents, with the exception of 10-year Treasury yields. 

In some good news, Yahoo Finance suggests the recession economists feared at the start of 2023 is now far less likely as a result of economic outperformance. Goldman Sachs chief economist Jan Hatzius puts the risk of a recession during the next year at 15%, which is roughly the historical risk of recession in any given year. And is down from 35% recession odds that we saw at the beginning of  2023. 

But presiding over a strong economy doesn’t automatically win Biden favour. Indeed, his approval ratings show that his popularity is close to the lowest levels seen during his presidency.

With the most recent polls suggesting that Trump could give the president a run for his money if he wins the Republican nomination, leading to question: would Trump be a better choice for the US?

A second Trump presidency could create more uncertainty 

As described above, market returns were higher under Trump’s presidency than they are at present. However, should he be re-elected, uncertainty is likely. 

Recent history shows that a Trump presidency could be highly unpredictable. 

Indeed, analysis reported in the Independent suggests that Trump made more than 30,000 false or misleading statements during his four years in office. This equates to almost 21 mistruths a day.

This included misleading statements about the performance of the economy, the unemployment rate, and the level of tax cuts he had implemented.

On top of this, Politifact analysis showed that Trump broke 53% of his election promises.

So, it may come as little surprise that Schroders suggest that a Trump win at the 2024 US election could cause more uncertainty for stock markets. 

A split Congress could lead to higher returns on equities

Another possibility is that the next president may need to work with a split Congress if their party fails to win the majority. 

As a Reuters report explains, in this event, since two parties must compromise on their approaches, a split Congress often leads to more moderate policies.

This usually creates more stability in the economy. Consequently, investors feel reassured, which may help to reduce the chance of stock market volatility.

External factors can also affect economic and market conditions 

Though looking back at historical data and trends might help shed light on the possible effects of the US election on stock markets, there are numerous other factors that can affect investment performance. 

No matter who is elected in 2024, it’s impossible to foresee how markets will respond. And it’s crucial to remain level-headed, as any volatility or uncertainty caused is unlikely to last. 

So, no matter what the outcome of the election turns out to be, try to focus on your own long-term goals when making investment decisions rather than short-term conditions on the stock market. 

Get in touch

If you’re concerned about how the 2024 US election could affect your investments, please get in touch. Email enquiries@alexanderpeter.com or give us a call on +44 1689 493455.

Please note

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.