The S&P 500 has at all times produced a constructive return within the second half of election years involving an incumbent president.
The S&P 500 (^GSPC 0.54%) is extensively thought to be the perfect barometer for the general U.S. inventory market because of its scope and variety. The index measures the efficiency of 500 giant firms that cowl 80% of U.S. equities by market capitalization.
The S&P 500 superior 14% in the course of the first half of 2024, outpacing the historic common of 5%, and one inventory market indicator says the index is headed even larger within the coming months. Particularly, throughout presidential election years involving an incumbent (a president working for reelection), the S&P 500 has at all times — 100% of the time — generated a constructive return within the second half of the yr.
This is what traders must know.
Historical past says the S&P 500 might climb 11% within the second half of 2024
There have been 16 presidential elections because the S&P 500 was created in 1957, half of which concerned an incumbent president working for a second time period. As talked about, the index has at all times been a worthwhile funding in the course of the second half of election years involving an incumbent, no matter which presidential candidate received the election.
The chart beneath reveals the S&P 500’s return within the second half of each presidential election yr. Reelection years (years wherein an incumbent was working for reelection) are marked with an asterisk.
Yr
S&P 500 Return (Second Half of the Yr)
1960
2%
1964*
4%
1968
4%
1972*
10%
1976
3%
1980*
19%
1984*
9%
1988
2%
1992
7%
1996*
10%
2000
(9%)
2004*
6%
2008
(29%)
2012*
5%
2016
7%
2020*
21%
Common (All Years)
4%
Common (Reelection Years)
11%
Knowledge supply: YCharts. The desk reveals the S&P 500’s return within the second half of all presidential election years because the index was created in 1957. Asterisks denote reelection years, that means an incumbent president was working for a second time period.
As proven above, throughout presidential election years, the S&P 500 returned a median 4% in the course of the second half. Nevertheless, if the outcomes are restricted to years when an incumbent president was working for reelection, as Joe Biden is in 2024, the S&P 500 returned a median of 11% in the course of the second half.
Which will sound contrived, however Jeff Buchbinder at LPL Monetary supplied this logical clarification in a latest weblog publish. “We consider this sample is partly as a result of incumbent priming the pump forward of the election with fiscal stimulus and pro-growth regulatory insurance policies to stave off potential recession and encourage jobs progress.” Nevertheless, he additionally famous that Biden has restricted alternatives to prime the pump on condition that Republicans management the Home.
Regardless, historical past says the S&P 500 might return roughly 11% within the second half of 2024. The index has already superior 2% in July, leaving implied upside of 9% by December.
That mentioned, previous outcomes are by no means a assure of future returns. Macroeconomic fundamentals will in the end decide how the inventory market performs within the remaining months of 2024.
Historical past says the S&P 500 might soar when the Federal Reserve cuts rates of interest
Wall Avenue will monitor labor market and inflation knowledge carefully within the coming months, expecting proof the economic system is headed for a comfortable touchdown, a situation wherein the Federal Reserve brings inflation again to its 2% goal with out tipping the economic system right into a recession.
In June 2022, inflation reached a four-decade excessive of 9.8% because of provide chain disruptions and stimulus applications associated to Covid-19. The Federal Reserve responded with its most aggressive rate-hiking cycle because the early Eighties, and the federal funds price now sits at a 23-year excessive. That’s doubtlessly problematic for the inventory market as a result of customers and companies spend much less when borrowing prices are elevated, which suppresses company earnings progress.
On the brilliant aspect, inflation dropped to three.3% in Could 2024. However pricing pressures haven’t eased sufficient to warrant the lengthy awaited loosening cycle (a interval when the Federal Reserve is slicing rates of interest). So, traders are hoping inflation continues trending towards its 2% goal, whereas different knowledge factors — comparable to job openings and unemployment — present a steadily cooling, however nonetheless wholesome economic system.
In that situation, the Federal Reserve might lower rates of interest later this yr, and the economic system can also keep away from a recession. Such a decision has traditionally been excellent news for the inventory market. Throughout the seven loosening cycles since 1987, the S&P 500 returned a median 6% in the course of the 12 months following the primary price lower. However the common return was 16% throughout that 12-month interval if the economic system prevented a recession.
Traders ought to deal with long-term features, not short-term actions within the inventory market
Traders can put cash to work within the inventory market right this moment figuring out historical past is on their aspect. Certainly, the S&P 500 will return 11% in the course of the second half of 2024 if its efficiency aligns exactly with the historic common. In fact, no inventory market indicator is infallible, so traders needs to be cognizant of the dangers.
If the Federal Reserve retains rates of interest elevated all through the remaining months yr, or if the economic system sinks right into a recession, the S&P 500 might simply decline within the second half of 2024. For that purpose, traders ought to follow a buy-and-hold technique that goals to seize long-term capital features.