Election years can be a time of strong stock market returns, analysts say: Since 1928, the S&P 500 has historically averaged total returns of 10% to 20%.
Interestingly, the third year of a president’s term appears to be the sweet spot, with analysts noting that the median return for this period over the past 95 years was 18.08%. Even the fourth year promises to be promising, with an average return of 9.5% and a 75% chance of positive growth.
While the entire year can be volatile, analysts highlight that the third quarter tends to be the strongest, with returns averaging 5.21%, roughly 70% of the average gain for the full year. However, it is important to note that in election years dating back to 1928, the average annual drawdown for the S&P 500 was 14.96%.
Analysts also identify some seasonal trends during election years. In the first half they state that it is typically range bound with potentially lower returns.
Meanwhile, it is said to deliver higher returns in the second half, especially in the third and fourth quarters.
When it comes to a Democratic president, the Dow Jones Industrial Average (DJIA) has historically lagged, while sectors such as energy, healthcare and financials could see gains.
Analysts say cyclical companies, technology and communications services could outperform for a Republican president.
Overall, stocks tend to be the strongest performers, with small-caps historically crowding out large-caps. Analysts say value stocks may underperform throughout the year but finish stronger than growth stocks.
Looking specifically at 2024, analysts believe their High Level Trading Range (HLTR) forecast is in line with historical election year trends and will likely continue through the November election. The S&P 500 year-end price target remains at 5050.