Election years can be tiring. Between fundraising emails, attack ads and partisanship, some would rather tune out for the year. But that might be a mistake for your portfolio. Jeffrey Hirsch, editor of The Stock Trader's Almanac, tells IBD why election years are important for the stock market in this week's "Investing with IBD" podcast.
How Election Years Impact Your Portfolio
Just this past week, we saw how elections can sway investors. Pundits expected the election of Claudia Scheinbaum as the first female president of Mexico. But investors seemed wary that the Morena party dominated the election victories. The iShares MSCI Mexico ETF fell more than 10% as a reaction. Over in India, the reelection of Indian Prime Minister Narendra Modi was also largely expected. But not retaining a number of parliamentary seats shook up the iShares MSCI India ETF.
Closer to home, Hirsch looks at the typical behavior of investors with U.S. election cycles. Looking at data from 1949 to 2023, election years often see gains. But those gains tend to be even better when an incumbent president is running.
The stock market is known for its displeasure with uncertainty. "We're in a unique situation with this election," Hirsch noted. "The decision comes down to one of two known entities. Either way, we kind of know what to expect."
Maybe that's why the stock market's performance this year is tracking even better than what's typical during election years with sitting presidents. He explains why that might bode well for the remainder of the year, with election 2024 right around the corner.
Audio Version Of Podcast Episode
Election 2024: More Seasonal Data
Just like the Farmer's Almanac tells of times for reaping and sowing, Hirsch's data points to a strong finish for the rest of the year.
"We had a strong May and that tends to benefit the next seven months of the year," he explained. "Typically it's up 70% of the time and tacks on an average gain of 8.6% for the S&P 500. Plus, June tends to be the third best month for the S&P 500 in election year."
Maybe the adage "sell in May and go away" won't be the best course of action this year as election 2024 approaches.
But seasonality isn't the only important gauge. Technical action, fundamental strength in the economy, and the Fed's moves are also important components Hirsch analyzed on the show, along with investor sentiment.
Hirsch doesn't only focus on the seasonality of the market in general. The market data also points to cycles where certain sectors are often in favor. Two sectors getting his attention right now are utilities, tracked by the Utilities Select Sector SPDR ETF and the Consumer Staples Select Sector SPDR ETF.
Follow Nielsen on X, formerly known as Twitter, at @IBD_JNielsen.
