Can Pre-Election Market Trends Survive This Attention?
Apr 8, 2024
Let’s talk seasonality. For those that are unfamiliar, seasonality is the tendency for markets to perform better during some calendar periods and worse during others in a somewhat predictable way. One of the more amazing things about 2023 and part of the first quarter of 2024 is how well U.S. equity markets have been following the historical pre-presidential election seasonal path. The idea of the presidential cycle is predicated on the belief that the executive branch’s economic pursuits, priorities, and the desire to get re-elected are a primary influence on the stock market in the two years before an election. One could even argue that this influence is more relevant today than before, given the heavy fiscal-interventionist approaches that the current and previous administrations have pursued.
As the chart below details (focus less on the amplitudes in price and more on the turning points), the S&P 500 has been following the election calendar seasonality rather well over the last year, as most of the zigs and zags have occurred when the presidential cycle seasonality suggested it would. However, as this pattern has evolved and become more visible, it has become more widely discussed and may add risk over the next few months. Widely watched things in markets have a habit of not working for very long, as too many participants collectively acting on the same thing will inherently disrupt the pattern and can alter the path that the market is headed in. Over the last few weeks, we have seen the S&P 500 more noticeably deviate course. Only time will tell if the current presidential cycle seasonality is ending early, but next month should shed some light on that question. If the S&P 500 is still following the suggested seasonal path, then weakness and a low in May would be expected to be followed by strength in the index over the summer. However, if the current uptrend fails to pause in May or we notice weakness develop and extend well into June, then it will be a strong sign that this round of election year seasonality has indeed subsided early.
S&P 500 Progression During Year Three and Four of Presidential Cycle (1951–YTD)
Source: LPL Research, Bloomberg 04/01/24
Disclosures: All data as of 1951–YTD. Past performance is no guarantee of future results. All indexes are unmanaged and can’t be invested in directly. The modern design of the S&P 500 stock index was first launched in 1957. Performance back to 1950 incorporates the performance of predecessor index, the S&P 90.
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