The S&P 500 index has historically exhibited varied performance during U.S. presidential election years, influenced by the elected party. From 1928 to 2020, the index averaged an approximate 7% return in election years. When a Democrat was elected, the average return was approximately 8.29%, while a Republican election corresponded with an average return of about 15%. These figures suggest a slight historical advantage during Republican election years, though numerous factors beyond the election itself can impact market performance. As of writing this, the S&P 500 index is currently up over 25% YTD.
Historically, the average annual returns of the S&P 500 have averaged an annual return of approximately 10.8% under democratic presidents, and 5.6% under republican presidents.
Also to note, the stock market reacts positively to reduced uncertainty. With the recent conclusion of the U.S. presidential election and clearer indications from the Federal Reserve regarding interest rate policies, investor confidence has strengthened. This clarity diminishes market volatility and fosters a more favorable environment for equities in the short term. For instance, following the 2024 election (which is still being counted), major indices like the S&P 500 and Dow Jones Industrial Average reached record highs, reflecting this sentiment.
As of November 2024, corporate profits have shown resilience, with the majority of companies reporting earnings that surpass expectations, contributing to the stock market's upward trajectory. The U.S. economy continues to expand, with real GDP growth projected at 2.6% for 2024. The unemployment rate remains low, edging up from 3.7% in early 2024 to 4.0% by the first quarter of 2025, indicating a robust labor market.
Wage growth has been steady, supporting consumer spending and overall economic health. Inflation has moderated, with the Personal Consumption Expenditures (PCE) price index expected to reach about 2.25% by the end of 2025, aligning closely with the Federal Reserve's target. The Producer Price Index (PPI) has also stabilized, reflecting balanced input costs for producers.
Although we will release our full outlook next year, looking ahead to 2025, at this time the U.S. economy is anticipated to maintain moderate growth. The Conference Board forecasts a 1.7% increase in real GDP for the year. The labor market is expected to remain healthy, with the unemployment rate stabilizing around 4.0%. Inflation is projected to stay near the Federal Reserve's 2% target, providing a stable economic environment conducive to sustained growth.
However, it is important to note that the rise in the 10-year despite the Fed lowering rates gives pause to the fixed income markets and may be telling of what’s to come. Investors may be anticipating higher future inflation and interest rates, which increases long-term yields.
While the current economic indicators are positive, investors should remain vigilant. Market corrections—defined as a decline of 10% or more in stock prices—can occur unexpectedly, triggered by specific events or shifts in investor sentiment. Given the market's recent highs, a correction within the next quarter or two is highly possible. Maintaining a diversified portfolio in 2025 and a long-term investment strategy can help navigate potential market volatility.
Note: Interlaken Advisors does not offer investment or portfolio management services.
Nothing herein is intended to be investment advice. All investments involve the risk of loss, including the loss of principal. Past performance is no guarantee of future returns. The content contained in this article represents only the opinions and viewpoints of the Interlaken Advisors editorial staff.