As we head into the US Presidential elections in 2024, a question from investors is its impact on US equity market. This report looks at how the US markets have performed in both absolute and relative terms to the rest of the world, when compared to the MSCI World ex USA Index, in the past 10 election years dating back to 1984.
Overview of US market performance in election years
Looking at Figure 1, election years have historically provided positive returns for the US markets in contrast to the mixed performance from the rest of the world, which is represented by the MSCI World ex USA Index. In the past 10 election years, the S&P 500 has yielded gains on 8 occasions, with an average return of 3.81%. The MSCI World ex USA Index was positive on 6 occasions, averaging a slight loss of 0.64%. The outperformance of the US markets over the rest of the world was also evident after 2013 as shown in Figure 2.
The top election years were in 1988, 1996, 2012, and 2020 where the US markets delivered over 10% returns. The 2 years in the red were in 2000 and 2008 during the Dot-com bubble and Global Financial Crisis, with drawdowns of over 10% and 38%, respectively, for the S&P 500.
The data in Figure 1 also shows the market tends to outperform when a candidate from the incumbent party is elected. The average return in election years when the elected candidate came from the incumbent party was 11.29% compared to an average loss of 3.67% when a candidate from the opposing party took office.
To conclude, the S&P 500 has generated positive returns in the majority of the election years, dating back to 1984. The returns of US markets also outperform the rest of the world during these years, with the MSCI World ex USA Index posting a mixed performance. In addition, the market tends to outperform when a candidate from the incumbent party is elected.