As we enter the final days before US elections, markets have continued to behave largely consistently with historical seasonal patterns, though we do not rule out the potential for significant volatility over the next few days, as has been the norm in previous election years in the days leading up to the vote.

 

This calendar year has followed history, where, absent recession, the S&P 500 has generated positive average returns during presidential election years. As of 10/24/2024, the S&P 500 is up +23.2% having recorded its best nine-month start to a calendar year since 1997.[1] We are still in the camp that the underlying momentum of the economy bodes well for corporate earnings, which in turn should support stock prices— for the intermediate term.

 

For the very near-term, the likely probability-weighted outcome of election scenarios is one that should be mostly market indifferent. Specifically, that a divided Congress mitigates the odds of draconian policy changes (i.e., super tariffs, taxing unrealized capital gains) that could significantly upset markets.

 

A sweep by either party could spur volatility in the market.  Just a few weeks ago the likelihood of a Republican sweep on the online betting site Kalshi was less than 30% but has climbed to over 45% in recent days.  Whereas the odds of a blue wave by Democrats have fallen to less than 15%.  While betting markets have been influenced by large, concentrated bets, several sites are now generally aligned, and direction of travel is more important than the precision of the data. A sweep by either party, however narrow, would likely be touted as a “mandate” and may foreshadow a more partisan, uncompromising agenda, particularly in the first 100 days in office.

Coincident with the election, the Federal Reserve meets on November 6 and 7 with markets currently pricing in a near 100% probability of a 25 basis point rate cut.[2] Corporate earnings reports will also be dominating headlines with many of the so called “Magnificent 7” set to report Q3 results in the next days. With this trifecta of potential market moving events set to unfold over the next two-week horizon, it is important to remain disciplined in what matters most: long-term asset allocation.

As we have done in the past, we will be communicating with clients as it relates to potential changes in economic and market projections that may arise as a result of this year’s elections. In the meantime, as we have discussed in a recent Research Corner, expect that results are likely to be drawn out beyond the day after election day.

 

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[1] Bloomberg LP, as of 10/24/2024

[2] Bloomberg LP, as of 10/25/2024

 

DISCLOSURES

Information provided in this article is general in nature, is provided for informational purposes only, and should not be construed as investment advice. These materials do not constitute an offer or recommendation to buy or sell securities. The views expressed by the author are based upon the data available at the time the article was written. Any such views are subject to change at any time based on market or other conditions. Clearstead disclaims any liability for any direct or incidental loss incurred by applying any of the information in this article. All investment decisions must be evaluated as to whether it is consistent with your investment objectives, risk tolerance, and financial situation. You should consult with an investment professional before making any investment decision.

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