What Are the Odds the S&P 500 Ends Higher in an Election Year?
As U.S. presidential elections approach, investors often wonder how the stock market, particularly the S&P 500, will perform.
Election years bring political uncertainty, campaign promises, and economic shifts, all of which can influence market trends.
So, what are the odds the S&P 500 ends higher in an election year? Historical data offers compelling insights, but the full picture requires context. In this article, we explore the numbers, key trends, and what they mean for investors.
A Strong Historical Trend: S&P 500 in Election Years
The S&P 500, a benchmark index tracking 500 leading U.S. companies, has a remarkable track record during presidential election years.
Since 1928, there have been 25 election years, and in 21 of them, the S&P 500 posted a positive total return (including dividends), translating to an 84% probability of ending the year higher than it started.
This data, highlights a robust historical tendency for gains during election cycles.
For example, election years like 1980 (+32.42%), 2020 (+18.40%), and 2024 (+25.02%) saw significant gains, reinforcing the trend. But while the odds are impressive, they’re not foolproof, of course.
Let’s dive deeper into the numbers and what drives them.
Breaking Down the Numbers: Election Year Performance
To understand the S&P 500’s performance, we analyzed total return data from 1928 until today. Total return accounts for both price appreciation and reinvested dividends, offering a comprehensive view of investor outcomes. Here’s a snapshot of key election years:
- 1928: +43.61% – A strong bull market year.
- 1980: +32.42% – Economic recovery post-recession.
- 2020: +18.40% – Resilience despite the COVID-19 pandemic.
- 2024: +25.02% – Buoyed by economic growth and easing monetary policy.
However, there are exceptions. Four election years saw negative returns, often tied to major economic crises:
- 1932: -8.19% (Great Depression)
- 1940: -9.78% (World War II onset)
- 2000: -9.10% (Dot-com bubble burst)
- 2008: -37.00% (Global financial crisis)
These outliers indicate that, while the S&P 500 tends to rise in election years, significant disruptions can result in losses.
For comparison, when considering price returns (excluding dividends), the probability of a positive year decreases to 72% (18 out of 25 years), as dividends often enhance returns in otherwise flat years.
Why Does the S&P 500 Perform Well in Election Years?
Several factors may explain the S&P 500’s strong performance during election years:
- Economic Stimulus: Politicians often advocate for pro-growth policies, such as tax cuts or increased spending, to appeal to voters. These measures can stimulate economic activity and boost stock prices.
- Post-Election Clarity: Once the election results are clear, markets often rally as uncertainty fades and investors gain confidence in the policy outlook.
- Market Resilience: The S&P 500 has historically shown strength in navigating political cycles, supported by long-term economic growth in the U.S.
However, external shocks—like recessions, wars, or financial crises—can disrupt this pattern, as seen in 2008 and 2000. The interplay of these factors makes each election year unique.
What This Means for Investors in 2025 and Beyond
While an 84% historical probability is encouraging, it’s not a guarantee. The stock market is influenced by a complex mix of global events, monetary policy, and economic conditions.
For instance, 2024’s strong performance was driven by robust corporate earnings and Federal Reserve rate cuts, but future years may face different challenges, such as inflation or geopolitical tensions.
Here are key takeaways for investors:
- Diversify Your Portfolio: Spread investments across asset classes to mitigate risks, as election-year gains aren’t certain.
- Focus on the Long Term: Short-term market swings are normal, but the S&P 500 has historically trended upward over decades.
- Consult a Financial Advisor: Personalized advice can help align your strategy with your goals and risk tolerance.
Comparing Election Years to Non-Election Years
How do election years stack up against other years? Since 1928, the S&P 500’s average annual total return is approximately 10%, with election years slightly outperforming non-election years in some analyses.
For instance, data up to 2020 from Moomoo suggests election years averaged higher returns than mid-term election years, though the difference is modest. This supports the idea that election years may have a unique market dynamic, but broader economic conditions remain the dominant driver.
Final Thoughts: Election Year Markets
The odds are in favor of the S&P 500 ending higher in an election year, with an 84% historical probability based on nearly a century of data.
However, exceptions during major crises remind us that markets are unpredictable. For investors, the key is to stay informed, diversify, and avoid over-relying on historical patterns.