Fisher Investments Reviews the Results of the US Presidential Election

As we’ve discussed previously, stocks don’t play political favorites. Markets may experience some short-term volatility, but we believe the reduced uncertainty should be a tailwind for stocks through yearend at least. In this article, we’ll review historical election trends and detail how the outcome may affect stocks going into 2025.

Stock Returns Before and After Election Day

Though the election has passed, some uncertainties remain. Investors are already speculating on everything from ongoing cabinet appointments to proposed policy changes. There are risks and opportunities to weigh, but stocks have a clearer path forward than just weeks ago. As Exhibit 1 shows, this falling uncertainty is one reason we believe stocks typically respond favorably in the months and quarters following presidential elections.

As we’ll discuss, it will be important to monitor political developments into the new president’s inaugural year. Once President-elect Trump takes office, he will likely pursue his biggest plans early, when political capital is highest. This could raise uncertainty next year, but for now the election’s passing should help propel stocks higher in the period immediately ahead.

Exhibit 1: Stock Returns Before and After Election Day

Source: FactSet, as of 10/16/2024. S&P 500 Price Index, daily, 11/6/1927 – 1/3/2021.

The Perverse Inverse

While stocks are politically agnostic, the outcome of the presidential election can still have implications. Ken Fisher, Founder, Executive Chairman and Co-Chief Investment Officer of Fisher Investments, termed a market phenomenon he calls the “perverse inverse”—where election- and inaugural-year returns can be influenced by which party secures the White House.

Exhibit 2 shows election-year and inaugural-year returns historically differ under Republican and Democratic presidents. When a Republican wins, election-year returns are higher than when a Democrat wins (left column). We believe this dynamic is partially due to the traditional perception that Republicans are more pro-business and anti-regulation than Democrats. However, the checks and balances in place in the US government make it difficult for any president to do as much as some investors hope and others fear. That legislative difficulty can lead to disappointment and stock market headwinds in inaugural years under Republican presidents and relief and stock market tailwinds under Democrat presidents (middle column).

Whether the perverse inverse holds true or not under a renewed Trump presidency remains to be seen. As we’ll explain below, a unified government may raise legislative risk. However, we think the important takeaway is that stocks tend to be nicely positive over the two-year span around elections (right column), regardless of who occupies the White House.

Exhibit 2: The Perverse Inverse

Source: Global Financial Data, as of 1/5/2024. S&P 500 Total Return Index average cumulative returns by presidential election year, 1925 – 2021.

Unified versus Gridlocked Governments

Republicans have flipped the Senate and extended their narrow House majority—meaning a unified government will be sworn in on January 3. When one party controls Congress and the presidency together, the potential for disruptive legislation increases. As shown in Exhibit 3, US stocks are less frequently positive with lower returns under unified governments.

However, we don’t think this automatically signals trouble ahead. While the Republicans may have a technical majority, the margins are thin and even minor disagreements could derail the party’s legislative agenda.

Additionally, legislation isn’t inherently negative. It’s important to monitor all legislative developments to analyze the risks, opportunities and unintended consequences. While less robust than a divided government, stocks are still frequently positive with healthy returns under unified governments. Notably, the 2016 and 2020 elections both resulted in unified governments and stocks rose nicely in each of the following inaugural years^[i]

Though the results of this election bears implications for stocks, in our view, today’s clarity—combined with a resilient global economy and pragmatic investor sentiment—likely supports stocks in the period ahead.

Exhibit 3: Unified versus Gridlocked Governments

Source: Global Financial Data, as of 8/22/2024. S&P 500 average annualized total return, yearly, 12/31/1928 – 8/2/2024. Unified government: Party of President, Senate and House all align. A gridlocked government is any other makeup.

Want to Dig Deeper?

In this article, we discussed how the results of the US presidential election could impact markets. For further discussion on what the election’s outcome likely means for stocks, you can read Fisher Investments’ MarketMinder article, “Our View of America’s Election and Markets.”