Rosalind Evans
As the United States braces for its presidential election in under a year, investors and financial experts speculate on the potential impact on stocks. With a historical trend of stock market gains during the fourth year of presidential terms, the S&P 500 index has already showcased a promising 14% rise in 2023. Wall Street’s current embrace of artificial intelligence and the hopeful cessation of interest rate hikes by the Federal Reserve have played significant roles in this upward trajectory.
However, the market’s journey has its challenges. Global conflicts and economic uncertainties loom over the rally, including potential repercussions of the Fed’s rate increases. Yet, some economists and investors have shrugged off recession concerns bolstered by a resilient labour market and economy. The New York Fed’s model forecasts a 56% chance of a recession by September 2024, adding a layer of caution to the mix.
Election periods often clear the fog of uncertainty for investors, according to Darrell Crate of Easterly Asset Management, who believes that elections create a clearer investing environment for the following years. Historical data from Goldman Sachs reinforces this sentiment, revealing that stocks tend to perform better post-Election Day.
Yet, while the fourth year of presidential terms has seen average gains, they fall short of the third year’s performance. Joe Abbott of Yardeni Research attributes this to the political climate, as strong economic and market performance is advantageous for incumbents hitting the campaign trail.
Amidst these financial speculations, the Cleveland Fed prepares for a transition as President Loretta Mester approaches retirement, marking the end of a term characterized by a firm stance on inflation control. Concurrently, General Motors forges a path to reduce reliance on China for rare Earth minerals, collaborating with Niron Magnetics to innovate in electric vehicle motor production.
The market is riding a wave of historical momentum as the election draws near. However, with geopolitical uncertainties and potential shifts in economic policy on the horizon, only time will reveal the true impact of the presidential election on stocks.
The anticipation of next year’s election is a beacon of optimism and a note of caution for Wall Street. As investors navigate these turbulent waters, they would do well to heed the lessons of history while preparing for unforeseen challenges.
