Aniket Pujari
US Presidential Elections 2024: The high-stakes US Presidential Elections 2024 have entered their final days as billions of Americans cast votes to pick their preferred President to lead the world’s largest economy for the next four years. Vice President and Democratic candidate Kamala Harris and former President and Republican candidate Donald Trump continue to run next-to-neck in national polls and key battleground states in a tight race for the White House.
Amid the election momentum, investors assume the heightened emotions and uncertainty surrounding the poll results could substantially impact market sentiment and performance. Historical data shows that the S&P 500 rallied one to two per cent on the day of the US election results, whether blue or red in the White House. The performance of the US stock market indices, S&P 500, Dow Jones Industrial Average, and the tech-heavy Nasdaq during the elections is influenced by policy and economic stimulus measures.
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Observing the last five elections, the US stock market has tended to rally after the results were out. Increased volatility was observed in the period leading up to the elections. The US stock market has performed well over the long term under both Democratic and Republican leadership. However, five-year data revealed that market returns have favoured the Democrats.
US Presidential Polls: Who won and lost in the last 5 years?
2020 United States Presidential Elections: The Democratic ticket of former Vice President Joe Biden and the junior US senator from California, Kamala Harris, defeated the incumbent Republican President Donald Trump and Vice President Mike Pence. The election saw the highest voter turnout by percentage since 1900. Joe Biden received more than 81 million votes, the most votes ever cast for a candidate in a US presidential election.
2016 United States Presidential Elections: The Republican ticket of businessman Donald Trump and Indiana Governor Mike Pence defeated the Democratic ticket of former Secretary of State and First Lady of the United States Hillary Clinton and Virginia junior Senator Tim Kaine in what was considered one of the biggest political upsets in American history.
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2012 United States Presidential Elections: Incumbent Democratic President Barack Obama and his running mate, incumbent Vice President Joe Biden, were elected to a second term. They defeated the Republican ticket of former Governor of Massachusetts Mitt Romney and US Representative Paul Ryan of Wisconsin.
2008 United States Presidential Elections: The Democratic ticket of Barack Obama, the junior Senator from Illinois, and Joe Biden, the senior Senator from Delaware, defeated the Republican ticket of John McCain, the senior Senator from Arizona, and Sarah Palin, the governor of Alaska. Obama became the first African American to be elected to the Presidency, and the third sitting United States senator elected president, joining Warren G. Harding and John F. Kennedy.
2004 United States Presidential Elections: The Republican ticket of incumbent President George W. Bush and his running mate, incumbent Vice President Dick Cheney, was re-elected to a second term. They narrowly defeated the Democratic ticket of John Kerry, a senator from Massachusetts, and his running mate John Edwards, a senator from North Carolina.
US Presidential Polls: Impact on the US stock market
Let’s take a look at how the US stock market has performed in the last five US Presidential Elections:
Investors can feel jittery during election years, concerned about how election results might sway their investment portfolios. Some even consider hitting the pause button on investing altogether to avoid uncertainty. However, historical data shows markets do not pick political favourites. The Nasdaq performs well in election years, particularly when policy direction is clear after an election.
Historically, markets have performed well post-election under Democratic presidents, as seen with Biden in 2020 and Obama in 2012. These rallies are often fueled by expectations of economic recovery and stimulus measures, though broader economic factors (e.g., recovery from recessions) are key contributors.
“The market has also reacted positively to Republican victories. For example, Trump’s 2016 victory led to a sharp rally, with markets anticipating corporate-friendly policies, while Bush’s re-election in 2004 provided stability during the Iraq War,” said Sujit Modi, CIO, Share.Market.
US stock market during 2020 and 2016 elections:
With the 2020 elections, the Dow Jones Industrial Average (DJIA) index closed around 28,000 points at the start of October 2020. After the elections, the DJIA initially surged, closing above 30,000 points for the first time in late November 2020. This increase was due to optimism regarding vaccine developments and expectations of additional fiscal stimulus under the Biden administration.
The Nasdaq index shows a similar trend. Leading up to the election, the index experienced considerable volatility. In early October 2020, it was around 11,000 points. After the elections, the Nasdaq rallied sharply. By late November 2020, it had surpassed 12,000 points.
“From early October 2020 to March 2021, the index recorded a gain of approximately 15 per cent. This increase was fueled by strong performance in technology stocks, particularly favoured during the pandemic as remote work and digital services surged,” added Sujit Modi.
Despite changes in governing parties and various political events, markets have maintained their long-term upward trajectory, demonstrating resilience to short-term political shifts. Notably, analyzing the recent administrations, the S&P 500 performance during Trump and Biden’s terms has almost been identical.
According to Bloomberg data, during Donald Trump’s administration (Republican), the S&P 500 gave 61.54 per cent returns. The index gave 62.84 per cent returns during Joe Biden’s presidency (till September 1, 2024).
In which election did the US stock market rally the most?
The strongest gain on Election Day during the past five US Presidential Elections was 4.08 per cent when Barrack Obama became the first African American to be elected President of the United States during the peak of the Global Financial Crisis of 2007/08.
“A tight US presidential race is leading some investors to brace for a situation similar to 2000 when actual results were not known on Election night and it was unclear who had won, with the electoral votes of the state of Florida still undecided,” said Prashant Tandon, Executive Director, Investment Advisory, Waterfield Advisors.
How does the US stock market react on election result day?
On the day of the result announcement, the S&P 500’s returns remained muted, ranging from -0.7 per cent (on the result days of the 2000 and 1992 elections) to 1.4 per cent (on the 2020 result day), with an average return of 0.8 per cent and a standard deviation of 1.2 per cent. S&P 500 has always closed in the green on the US election result day.
“This results in an S&P 500 return range of -0.4 per cent to 2.0 per cent. The average performance of other major indices, such as the Dow Jones and Nasdaq Composite, also remained relatively flat, with gains of 1.0 per cent and 0.3 per cent, respectively,” said Manish Jain, Director of the Institutional Business (Equity & FI) Division at Mirae Asset Capital Markets.
How have US stock market returns fared in the last four elections?
Considering the average four-year performance of stock market returns under the Democratic and Republican parties (post-election results) across all three indices, the historical data favours the Democrats.
According to Manish Jain of Mirae Asset Capital Markets, the average four-year return of the Nasdaq under Democratic presidencies is 98.3 per cent, 60.7 percentage points higher than under Republican presidencies. For the S&P 500, the average four-year return is 57.1 per cent under Democratic leadership, compared to 29.8 per cent under Republican leadership.
Following election results, the S&P 500 tends to deliver muted returns over the next three months. However, market performance generally improves, with average six-month returns of approximately 5.2 per cent, compared to around 2.0 per cent over three months.
Market returns tend to be softer if the incumbent party loses, with the S&P 500 declining by an average of 0.6 per cent and 1.4 per cent over the next 1 and 3 months, respectively. While returns typically turn positive over the following 6-12 months, they tend to be lower compared to when the incumbent party wins. Historical trends suggest that the incumbent party is more likely to lose if the election occurs during or after a recession year.
How have the US Presidential elections impacted the Indian stock market?
Due to the economic collaboration between the US and India, the US Presidential elections tend to impact the Indian stock markets as well. Historically, Indian markets have experienced volatility based on the election outcome.
In 2008, amidst the financial crisis, though the Sensex was falling, it recovered a bit, driven by optimism over Obama’s US economic stimulus policies. Obama’s re-election in 2012 saw a modest 0.58 per cent rise in the Sensex as markets welcomed policy continuity.
Trump’s 2016 victory initially triggered a 1.75 per cent drop, reflecting uncertainty over trade policies, but markets rebounded soon after. Biden’s 2020 win, on the other hand, saw a two per cent rise in the Sensex, boosted by hopes of stable trade relations.
According to Sujit Modi, CIO, Share.Market, while the elections cause short-term movements, broader economic conditions—such as the financial crisis in 2008 or the pandemic in 2020—tend to impact market performance more than the political outcome alone.
Disclaimer: The views and recommendations provided in this analysis are those of individual analysts or broking companies, not Mint. We strongly advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and individual circumstances may vary.
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