Elections bring uncertainty and volatility to the markets. They can also bring endless nonsense to your inbox. While turning off social media is tempting, the economic impacts of elections are too important to ignore.
As an antidote, LearIM has launched “Stock the Vote” (STV) to share sober, non-partisan, fact-based analysis. We explore politics from the perspective of an investor. Each party has a separate set of facts, but STV offers a third set of facts you need to navigate the next several months.
The following is the format we will follow to discuss the impact of the elections of capital markets:
February 2024 – The Rematch Takes Shape?
The first stage of the election cycle is the early primaries in certain states. In January, Iowa and New Hampshire held the first Republican primaries. Donald Trump won both. Nikky Haley ended second in delegate count and Ron DeSantis dropped out of the race.
In February, Nevada held a primary and then caucus two days later. Trump was awarded all 26 delegates. The current delegate count as of February 14, 2024:
There are still 2,349 delegates remaining, but the early wins by Trump have led to a higher probability the former president will be the Republican nominee. Haley waits in the wings for Trump’s legalities to unfold.
We did not report the Democratic primary results this month because traditionally the sitting first term president is the nominee for that party. However, we will be watching closely for any changes.
The Super Bowl commercial by American Values Super PAC served as a reminder that an independent party candidate Robert Kennedy Jr. is still in the race. In order to be included on the ballot, the campaign has made the decision to launch an official party. So, welcome the “We the People” party to the circus.
Current Probabilities and Polls
The following are the non-partisan betting odds from oddschecker.com:
Currently, the odds makers heavily favor Trump to be next president. This begs the question – do we trust gambling lines over political polls? Let’s look at the polls to see if there is a difference. The following is a summary of various polls from RealClearPolitics.com:
The results of the polls are similar to the betting odds. These are the facts as of February 13, 2024.
Do Elections Matter?
The data displayed above may “trigger” certain readers. But we remain focused on the markets as opposed to taking the political bait. For the stock market’s perspective, does the party of the winner of the presidential election even matter to the stock market in the year of the election (like 2024)?
Consider the following data displaying the S&P 500 returns during the past 24 election years.
In the past 24 presidential elections, the return for the S&P 500 during election years was positive 83% of the time. As comparison, in all years since 1928 (election and non-election) the S&P 500 was positive 73% of the time. Elections years are historically positive – even more than regular years.
The average annual return during presidential election years was 10%. The return when a Republican was elected was higher than when a Democrat elected. But there is more to it than the elected president’s political party. The largest outlier return was -37% during the 2008 Great Financial Crisis. This was the year Obama was elected and the stock market crashed -50%. We do not believe this market crash was related to the president’s party, but the return was a result of the stage of the economic cycle.
We believe the stage of the economic cycle and other financial factors are just as important as the party of the winner.
In Conclusion
It is early in the election cycle, so we don’t make too much of the current betting odds or polls. Our focus is understanding the potential policy impacts of each potential candidate. We will pay particular attention to three main impacts on the capital markets and economies in future notes:
The political circus is already taking twists and turns many could never imagine. It will be more important than ever to understand the impact on the financial markets. Until next time….
Keep your inbox clean, your mind calm and your portfolio dynamic.
This letter is for informational purposes only. The content herein contains the observations and opinions of the author, is not intended to provide investment advice, and should not be relied upon for any investment decisions. Past performance is no guarantee of future results and information pertaining to our processes is subject to change at any time without notice.