2024 Q3 Market Commentary

All Eyes on the Election

Many pundits are calling next month’s election one of the most consequential in history. But what impact have presidential election and the resulting balance of power had on the stock market in the past?

The Empirical Data

U.S. Bank investment strategists reviewed market data going back to 1948. Using average 3-month returns following each election outcome—and comparing those with the average 3-month return during the full analysis history—strategists calculated the statistical significance of the relationship between political control and market performance using a calculation called a t-statistic, or t-test.

Results of the analysis contradict conventional wisdom that a Republican or Democratic “sweep” of the presidency and Congress is most likely to cause market disruption. In fact, historically there has not been a statistically significant relationship between single-party control of both the White House and Congress and market performance.

It’s The Economy, Stupid

"The economy, stupid" is a phrase that was coined by Jim Carville in 1992. Carville was Bill Clinton’s campaign strategist and was commenting on how George Bush’s approval rating could swing from 90% approval in March 1991 (just after the ground war in Kuwait) to 64% disapproval in August 1992. While the recession of 1990-91 had technically ended by then, it was characterized by a sluggish employment recovery, commonly referred to as a “jobless recovery.” Bush went on to lose that election.

With this in mind, US Bank also studied the effects of various economic factors on post-election returns and found a much stronger relationship. While investors may closely monitor election results for their potential effect on stock market performance, it’s important to recognize that other factors that may have greater impact on their portfolios. The historical data suggests that economic and inflation trends, more so than election outcomes, tend to have a stronger, more consistent relationship with stock performance.

In general, rising economic growth and falling inflation have been associated with returns that are considered above long-term averages, while falling growth and rising inflation have corresponded to positive but below average market returns. For investors, staying focused on these patterns is probably more insightful than potential election outcomes when it comes to forecasting market performance.

Today’s Economic Indicators

Deficits continue to soar, which does not bode well in the long term. But economic growth remains resilient and un-employment is very low relative to historical levels. Today’s unemployment rate is 4.2%, compared to 7.6% when Bush lost his reelection bid in 1992. The U-6 unemployment rate, which includes the total unemployed, plus “all persons marginally attached to the labor force, plus total employed part time for economic reasons,” is 7.9% today vs roughly 12.7% in 1992.

Other indicators point to a stable economy as well. Non-farm payrolls surprised to the upside in Q3, and GDP growth has remained very resilient (see charts below). JP Morgan also just lowered its high yield bond default rate projec-tions by 75bp to just 1.25%. These readings do not typically indicate a looming recession.

Much analysis has been done on the yield curve and how an “un-inversion” typically coincides with a recession. But this theory has not been tested since we entered the era of the money printer. So much depends on the Fed’s response to any developing economic weakness.

The Election Year Cycle

2024 continues to follow the “average” election year pattern, although the returns are stronger than average and we saw an August pullback instead of the typical September sell off. Based on data from the last 75 years, we may see some further election anxiety/weakness in the month of October, but then the market typically resolves higher through the end of the year.

So…Does It Matter Who Wins?

For many people, the stakes could not be higher, and the idea of the “other party” winning represents an existential threat to our democracy. But Mr. Market has proven time and again that he is bipartisan, that it’s the economy that matters, not political rhetoric. And as much criticism as the Federal Reserve has received, they have managed to bring inflation under control over the past few years and guide the economy to an apparent soft landing. Based on current levels of GDP growth and unemployment, markets appear to be on relatively solid ground.

As markets evolve, it’s important to keep your unique financial goals in mind. If you have any questions about your current strategy or how recent changes may affect your plans, don’t hesitate to reach out. We’re here to ensure your path stays aligned with your goals.

*The foregoing content reflects the opinions of Van Hulzen Asset Management DBA "Van Hulzen Financial Advisors" and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. Securities investing involves risk, including the potential for loss of principal. There is no assurance that any investment plan or strategy will be successful.