Stock Market Rallies Amid Presidential Election Drama; 4 Factors May Keep The

Tensions run high in presidential election years. Yet the stock market’s impressive uptrend since early November seems to press forward an argument: Investing returns can grow no matter who wins.

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The case for positive returns in 2024 rests largely on one key factor: optimism over future earnings. Put another way, strong future profit growth sets up reasonable valuations today.

Factor No. 2? The stock market forecast tends to benefit from a high likelihood the Federal Reserve, after signaling in November it’s done raising interest rates, will start lowering them this year.

Lower rates help boost investments by companies and spur acquisitions. They reduce the cost of borrowing and encourage stock buybacks and dividends, ultimately growing investor returns.

Given the current shape of the presidential race, stock market bulls have history on their side — the third positive factor.

Stock Market And The Bullish Presidential Election Cycle

“I don’t trade on cycle work, but I’m always aware of it,” Mark Minervini, a two-time U.S. Investing Championships winner, said during the Jan. 31 episode of IBD Live. “Based on the presidential cycle, we (might) have a very strong trend from the second half of 2024 to the first half of 2025.”

“What we really have is the potential of rates coming down. The market was a little too aggressive in its anticipation of a rate cut in March,” Minervini added. However, “you do not look at the wiggles (in price), you look at the trend. And when you look at a first rate cut without a recession coming, that’s where the real power (of institutional buying) comes in.”

Ned Davis Research, studying a century of history, found the stock market gets a tailwind when the Federal Reserve makes its first cut in interest rates. From 1921 through 2019, the six-month average gain by relevant indexes has averaged 9.9%. Over a 12-month span, the mean gain increased to 14.4%. The median returns, 10.2% after six months and 15.2% after 12 months, are cheery too.

In 2024, growth stocks have made a red-hot start. Innovator IBD 50 (FFTY) pulled back this week, but had climbed as much as 16%. That nearly doubles the 8.2% gain by SPDR S&P 500 Trust (SPY). The iShares Russell 2000 (IWM) exchange traded fund has ascended 3.5%.

These Large Caps Are Smashing The Indexes In 2024

Stock Market In 2016 Election

Nevertheless, one should never rule out sharp pullbacks and wild price movements in the months to come.

Back in November 2016, investors witnessed immense stock market volatility. Dow Jones Industrial Average futures initially fell more than 700 points in the late hours of election night as an election upset brewed. Then the blue chip index surged as it became clear that Donald Trump defeated Hillary Clinton in the race for the White House.

So, eight years later, would a Trump victory this November help fuel further upside in the stock market? Or do investors favor the reelection of President Joe Biden?

“I’ll be honest. No one really has a great answer to this,” Jim Caron, CIO of portfolio solutions at Morgan Stanley Investment Management ($1.5 billion in assets managed), told Investor’s Business Daily. “We don’t have a political forecasting model built into our allocation strategy.”

Current State Of The Race

Today, it looks all but certain that Trump has wrapped up the Republican nomination. Nikki Haley announced on Wednesday that she’s suspending her campaign after losing all but one of the 15 primaries on Super Tuesday. This year pits Trump vs. Biden in a rematch of the 2020 contest.

Trump still has to deal with no fewer than four criminal cases, including a $454 million penalty from the state of New York for his conviction of business fraud. These challenges perhaps remind readers of Sir Winston Churchill, who said “Politics is almost as exciting as war, and quite as dangerous. In war you can only be killed once, but in politics many times.”

President Biden is facing challenges and concerns about his mental state and age.

A poll of 980 registered voters by the New York Times and Siena College published March 3 found that 73% “strongly agree” or “somewhat agree” that the 81-year-old commander in chief “is just too old to be an effective president.” The poll also found that 19% of those who voted for Biden in 2020 said that “age was such a problem that he was no longer capable of handling the job.”

Some Democratic senators have rushed to Biden’s defense, including the formidable Dick Durbin of Illinois. Biden suffers from low approval ratings over his handling of the economy, the U.S. border crisis and Israel’s war with Hamas.

Similarly poor approval numbers encircled Barack Obama in early 2012. Yet Obama trounced Mitt Romney to win a second term. At the time, the economy wasn’t roaring. Yet it staged a mild recovery from the 2008-2009 Great Recession.

Stock Market History On Investors’ Side, For Now

At least one market observer notes that Biden’s reelection bid benefits bullish…