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Stock market and presidential elections
The relationship between the stock market and presidential elections is complex and not always predictable. While there are some consistent patterns, election years are no exception. The Presidential Election Cycle Theory suggests that the stock market follows a predictable pattern during presidential election years.
However, recent history has challenged these patterns, and during the presidencies of Barack Obama and Donald Trump, these stock market theories did not hold up.
According to Dan Clifton of Strategas Research Partners, history shows that avoiding a recession in the two years leading up to an election is a key indicator of reelection. If the stock market index suffered losses in the three-month window leading up to the election, the incumbent party loses. It should be of no surprise that the markets performed better during a year when an incumbent president is elected compared to a new president. The performance of the S&P 500 in the three months before votes are cast has predicted 87% of elections since 1928 and 100% since 1984. That is to say, if the S&P 500 performs well from late-August to November in 2024, Biden would have a good chance to get reelected as president.
