To The Moon

The US presidential election in 2024 may be one of the most important market catalysts for the US stock market in the next 12 months.

While it's too early to predict who will win, current polls suggest a rematch between Democrat Joe Biden and Republican Donald Trump. America's election is a challenge for politicians and investors alike.

But historical data suggest that U.S. elections does not seem to be very friendly to stock market investors.

The performance of the S&P 500 index in the US Election year

Since 1952, there have been 17 presidential elections in the US, which the $S&P 500(.SPX)$ has risen an average of 7%.

That sounds good, but it is well below the 17% average gain in the year before the election and below the roughly 10% average annual total return of the S&P 500. It's not all bad news though. In all the presidential re-election years of 1952, the index never fell and rose 12.2% annually.

Jeffrey Buchbinder, chief equity strategist at Lippler Financial, said presidents seeking re-election often resort to fiscal stimulus and pro-growth regulatory policies.

Historical data shows that presidents who avoided a recession in the first two years of their re-election won all reelections, while presidents with recession labels lose all reelections. That would be a big hurdle for Mr. Biden, with many leading indicators suggesting the economy will contract next year.

What are the best-performing sectors in the election year?

Since 1973, the financial services and energy sectors have been the best performers during presidential election years, while the materials sector has performed worst performers, and tech sector, which has the best performed in non-election years over the past 50 years, is second from the bottom. So if the pattern continues in 2024, investors might consider buying exchange-traded funds (ETFs) in the financial services or energy sectors.

John Lynch, chief investment officer at Comerica Bank, said the performance of specific sectors will largely depend on the positions and policies of the presidential candidates, which change with each election, and it is unclear who will win.

Biden or Trump: Who is more bullish on US stocks?

During Trump's tenure, the S&P 500's total return (including dividends) was 69.6%, compared with 19.5% during Biden's tenure (as of Dec. 8). The difference is even more pronounced in the Nasdaq Composite index, where Trump's total return is 142.2%, compared with just 7% for Biden.

However, there is another statistic worth noting. Under Trump, the economy's annualized GDP growth has averaged just 2.6%, compared with 6.9% under Biden. But the unusual 2.8% drop in GDP in 2020 skews the economic data for both Trump and Biden.

Investment Strategy for 2024

Despite the uncertainties of an election year, the good news is that analysts are generally bullish on U.S. stocks in 2024. Analysts' average 12-month price target for the S&P 500 is 5,068, which would be an all-time high and 10% higher than its closing price on Dec. 8, according to FactSet Research.

In terms of sectors, analysts are most bullish on energy (26.1%), which is also the best performing sector in a presidential re-election year historically.

Gargi Chaudhuri, head of Americas iShares investment strategy at $BlackRock(BLK)$, said U.S. economic growth is expected to slow in 2024 and stocks are up slightly, but the risk factors besides the election are inflation, interest rates and geopolitical tensions.

Therefore, the stock market may fluctuate violently next year, leading the frequent replacement of stocks. Investors should not only do a good job of risk management, but also explore opportunities.