How Will an Election Year Impact U.S. Equities?

An analysis of U.S. equity markets performance during the last eight presidential election years reveals some historical trends investors should pay attention to in 2024.

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By Lori Calvasina
Published April 2, 2024 | 2 min read

Key Points

  • The stock market doesn’t like election uncertainty, but ultimately figures out how to position itself around any set of policies or political backdrop.
  • Investors outside the U.S. are preparing for a Trump victory in 2024, while U.S. investors expect a closer race and split control.
  • Any extended period of post-election uncertainty about the winner would be the biggest threat to market performance.
  • Financials historically outperform in election years, while small caps could benefit from an outcome that promotes an isolationist policy.

How do U.S. elections usually affect the stock market?

The potential changing of the guard that comes with the U.S. presidential election is an enormous uncertainty – and the stock market doesn’t like uncertainty.

The market usually goes up during presidential election years, but with below-average gains. The cycle starts with stocks selling off to start the year, then rallying back over the summer. The market will likely get choppy heading into November but tends to rally post-election once uncertainty around the outcome has dissipated.

What election outcome are investors anticipating?

Investors outside the U.S. have been highly focused on the election since late 2023, and they generally expect a Republican sweep this fall.

For U.S. investors, discussion around the election has been more like staring at the sun: something they feel the need to look at briefly, but find painful, and quickly move on to another topic.

We only have breadcrumbs of potential policy to analyze at this point, but with each round of caucuses and primaries, more U.S. investors should start to pay attention.

Currently, U.S. investors are more inclined to believe the race for the White House will be close, and that congressional control will be split in the end. This would be a less impactful event for equity markets, since it may result in a continuation of the status quo.

“For U.S. investors, discussions around the election have been like staring at the sun.”

Lori Calvasina, Head of U.S. Equity Strategy

How would a Trump reelection impact the equity market?

The stock market tends to go up regardless of which party controls the White House, and regardless of which party controls Congress. In fact, the stock market usually figures out how to position itself around any set of policies and political backdrop.

The biggest concern would be an extended period of uncertainty about the election outcome. In 2020, when the U.S. Supreme Court weighed in on the Florida recount, the stock market did not experience its typical post-election bump.

“The biggest concern would be an extended period of uncertainty about the election outcome.”

Lori Calvasina, Head of U.S. Equity Strategy

What broader themes should investors pay attention to at this point?

Our analysis of sector performance in the second half of the last eight presidential election years found several key trends. Defensive sectors tend to underperform, as does technology, while other sectors tend to outperform.

Overall, financials have the best track record. The only time it underperformed in the second half of a presidential election year was in 2008, during the financial crisis. That trend has caught a lot of investors’ attention, especially given the view that a Trump victory would potentially improve the regulatory environment for banks.

Investors also remember how small caps did well in 2016, around Trump's first victory, and in mid-2018, during the trade war with China. A more isolationist foreign policy under Trump could spark a ‘buy the U.S.’ trade, again to the benefit of small caps.

“A more isolationist foreign policy could spark a “buy the U.S.” trade.”

Lori Calvasina, Head of U.S. Equity Strategy

Our Experts

Lori Calvasina
Lori Calvasina
Managing Director & Head of U.S. Equity Strategy, RBC Capital Markets

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