S&P 500 returns tend to be measly in the 12 months leading up to a presidential election
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The 2024 U.S. presidential election is now only 12 months away, with the primary season set to begin Jan. 15. While every election year brings with it a unique mix of political and macroeconomic conditions, Goldman Sachs’ portfolio strategy research team says equity returns tend to be weaker than average in the 12 months leading up to a presidential election. Since 1984, the average S & P 500 return on election years is only 4%, according to Goldman. When looking more broadly from 1932, the S & P 500 has averaged returns of 7% during an election year and 9% outside of election years. “Defensive sectors have performed best, perhaps reflecting the elevated uncertainty that typically characterizes the run-up to presidential elections,” said Kostin. .SPX 1Y mountain S & P 500 Case in point, the St. Louis Federal Reserve’s Economic Policy Uncertainty Index has typically risen starting in the late summer to peak on Election Day. Options markets also start to price in greater uncertainty in the weeks prior to Election Day, the strategist noted. The October VIX Future premium typically rises during election years along with the policy uncertainty measure. Tech historically has been the worst-performing sector during election years, down by a median of 5 percentage points compared with the S & P 500, according to chief U.S. equity strategist David Kostin. Within the sector, hardware and semiconductors are usually the weakest, Kostin added. Meanwhile, utilities and consumer staples have averaged the highest median returns prior to presidential elections over the past four decades, rising 5 and 4 percentage points above the S & P 500, respectively. The firm said weakness during recent election cycles has been skewed by recessions around 2000, 2008 and 2020. The broad market index still trends lower, however, by 9% returns, versus 11% on average since 1984 when excluding the three recessionary years. Despite potential weakness before the election, investors can look forward to the weeks that follow the results as uncertainty recedes. In the median election year since 1984, the broad market index added 5% in the eight weeks from Election Day until year-end, almost double the returns during the same period in a normal year. “Post-election returns have typically been stronger when the election resulted in a divided government than a unified government, especially in the case of a wave election,” Kostin said. — CNBC’s Michael Bloom contributed to this report.
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