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The 2024 US presidential election is six months, or half a year, away. Sounds like still a ways out, but time goes fast – just as T+1 settlement seemed a long way off when it was six months to go, suddenly the May 28 implementation date is nigh.
How the election will impact the equity market was discussed May 2 at the Options Industry Conference in Asheville, North Carolina, in a panel entitled “Volatility on the Ballot? Navigating the Markets During an Election Year.”
Dennis Davitt, Chief Investment Officer at Millbank Dartmoor Portsmouth, noted that when Donal Trump was elected President in 2016, half of the country predicted an end of days scenario including a stock market crash. When Joe Biden was elected in 2020, the other half of the country predicted the same thing.
Instead, both the 2017-2020 and 2021-2024 (to date) periods were marked by an overall strong economy and rising stock market, without churning volatility.
“The only thing we can agree on is that we were 100% wrong in predicting the end of the world,” Davitt said.
Geoff Gaiss, Vice President, Global Derivatives at TRAFiX presented a bigger-picture view, noting that 20 of the past 24 presidential administrations were marked by overall stock market performance in line with long-term historical averages. The ones that weren’t were marked by exogenous events such as the Great Depression of 1929-1939, the popping of the dot-com bubble in the early 2000s, and the global financial crisis of 2008-2009.
Data shows that “elections and their outcomes don’t have a bearing on medium- and long-term returns of the S&P 500,” Gaiss said.
But there is risk in the days and weeks following the election, given the contentiousness and polarization between the two sides, and the scenario of the election being decided in the courts afterwards.
“A contested election is the single biggest risk factor,” Gaiss said. “This could introduce short-term volatility.”
Jim Toes, President and Chief Executive Officer of the Security Traders Association, noted the upcoming election is a unique situation in that the country has lived under the presidencies of both candidates. But from a market perspective, there are wildcards in that control of all three branches of government may flip, and the old axioms of buy defense stocks in a Republican administration and buy healthcare in a Democratic administration, don’t hold true like they used to.
But panelists again came back to the biggest risk on the horizon, which is uncertainty at 9:30 am on Wednesday, November 6, with neither candidate conceding. “The worst thing markets hate is not knowing,” Toes said.
