Investors Face Challenge in Betting on Stock Market Rally
Investors have a challenge in betting on the usual stock market rally that tends to arrive after a presidential election: With the S&P 500 Index on track for one of its best-ever starts to a year, history cannot be a guide this time.
The Classic Trading Playbook
Buying US stocks into year-end following a vote is the classic trading playbook. Historically, the S&P 500 has posted a median return of 5 per cent from Election Day in November to the end of the year, according to data compiled by Deutsche Bank. Even the riskiest pockets such as small-capitalisation companies typically catch a bid in the rising tide.
A Different Election Year
But this is hardly a classic election year. The S&P 500 is up 25 per cent in 2024 after leaping 24 per cent in 2023, putting the index on pace for its first back-to-back yearly gains of more than 20 per cent since the late 1990s. As a result, share prices are high, with the S&P 500 trading at more than 22 times projected 12-month earnings, compared with an average reading of 18 in the last decade. And positioning data shows traders are already heavily invested in equities.
A Potentially Quiet Holiday Season
Meanwhile, familiar foes from the past few years – rising bond yields and the threat of persistent inflation – loom in the background. All of which has the stock market set up for a potentially quiet holiday season – as opposed to the ragers of election years past.
What’s Ahead?
“With valuations elevated and the S&P 500 already near 6,000, the market will creep higher from here,” said Eric Beiley, executive managing director of wealth management at Steward Partners. “But I don’t see a big year-end rally because rising yields will keep investors at bay.”
Conclusion
In conclusion, investors face a challenge in betting on the usual stock market rally that tends to arrive after a presidential election. The S&P 500 is on track for one of its best-ever starts to a year, and history cannot be a guide this time. With valuations elevated and positioning data showing traders are already heavily invested in equities, the market may be set up for a potentially quiet holiday season.
Frequently Asked Questions
Q: What is the classic trading playbook for the stock market after a presidential election?
A: Buying US stocks into year-end following a vote is the classic trading playbook. Historically, the S&P 500 has posted a median return of 5 per cent from Election Day in November to the end of the year.
Q: Why is this election year different?
A: The S&P 500 is up 25 per cent in 2024 after leaping 24 per cent in 2023, putting the index on pace for its first back-to-back yearly gains of more than 20 per cent since the late 1990s. Share prices are high, and positioning data shows traders are already heavily invested in equities.
Q: What’s ahead for the stock market?
A: With valuations elevated and positioning data showing traders are already heavily invested in equities, the market may be set up for a potentially quiet holiday season. Rising bond yields and the threat of persistent inflation also loom in the background.
