WisdomTree Minds on the Markets
WisdomTree
Minds on the Markets
WisdomTree
Minds on the Markets
The Stock Market Loves Reelection Years
ARCHIVE: Week of March 4, 2024
We count 12 presidential elections since 1944 in which the incumbent was running for reelection. Republican or Democrat, win or lose, it didn’t seem to matter; the stock market went up in all 12 of those years. Up good, too. In the running-for-reelection years from 1944 to 2020, the median return was 17.2%, just above the 16.5% average. The figures for the non-reelection years from 1944–2020: a median return of 12.1% and an average of 13.5%.
We don’t rule out the distinct possibility of this backtest being noise, junk, or silliness. Then again, a 12-0 record of finishing the year in the black is unblemished. The same cannot be said for the non-reelection years’ win-loss record of 49-16.
Nevertheless, of the 12 years that an incumbent gave it a go for round two, the best stock market year was 1980. That was when Democrat Jimmy Carter’s reelection campaign foundered, ushering in the Reagan revolution and a 31.7% gain for the S&P 500. The second-place year was four years earlier, when the S&P 500 returned 23.8% amid Carter’s victory against the weak Republican incumbent, Gerald Ford.
Alright, maybe we are on to something: the stock market gives big wins when struggling incumbents get the boot.
Not so fast.
Third place, right behind the 1976 showing, is a 22.7% gain in 1996, a year when Democrat Bill Clinton was handily reelected over Republican challenger Bob Dole. Another reelection of a Democrat, FDR, in 1944 ushered in a 19.0% gain. The reelection of a Republican, Nixon, in 1972 witnessed an 18.8% run in the S&P 500. Democrats reelected, up we go; Republicans reelected, up we go. Democrats out, up we go; Republicans out, up we go.
But why?
For one, a president who has been in office for four years is a known quantity. If the public is keeping him around for four more years, the stock market may like the level of certainty that comes with continuity. Additionally, if the incumbent is incompetent or economically ignorant, they are probably on their way to the exit door. The stock market likes that, too.
Let’s assume the Democrats do not put Kamala Harris, Gavin Newsom or Michelle Obama at the top of the ticket. We and others will spend the next eight months trying to predict the outcome of this Biden versus Trump fistfight, but the only “person” who knows the result is the stock market. If the last 12 reelection battles are any indication, the stock market already knows the outcome and “likes” it.
The problem with citing historic high-teens returns for the S&P in such years is that the market is already up 7% year-to-date. A chunk of the year’s gains have already been made. But whether you want Biden to stay in or get kicked out, the stock market is bigger than any one of our personal opinions. The theory would go that, on net, the market as a collective will be happy about either four more years for Biden or an exit door for him, because it is that collective that makes the decision.
The stock market has contended with a long line of disparate candidates who had their own unique economic platforms. Every time, what was its consistent answer?
“The decision that will be made is the decision that I want.”
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