US Election 2024: Fears of Election Violence and Stock Market Impact
Elections in Mexico, India, and Europe have triggered global stock market turbulence this year, with investors worldwide facing uncertainties surrounding inflation, interest rates, and geopolitics. In the US, the upcoming presidential campaign and November election are already causing concerns about potential volatility.
Despite the typical aversion of markets to uncertainty and the associated risks of volatility, historical trends and various factors indicate that a closely contested election might not necessarily spell trouble for equities. The current contenders, President Joe Biden and presumed Republican nominee Donald Trump, are set to engage in the first presidential debate of this cycle on June 27.
Election years have historically been favorable for the US stock market, with the S&P 500 Index experiencing growth in nearly every election year since 1960. Exceptions to this trend were observed in 2000 and 2008, coinciding with the dotcom bubble burst and the financial crisis. Recent election cycles have shown even more positive outcomes, with the benchmark index recording at least a 10% increase in value during the three most recent election years – 2012, 2016, and 2020.
An analysis focusing on the last seven months of election years dating back to 1950 reveals a similar trend, with the S&P 500 rising in 16 out of 18 presidential elections during this period. The only down years were 2000, delayed by 36 days due to uncertainty, and 2008.
However, concerns are mounting regarding the potential prolonged uncertainty surrounding the 2024 election. Analysts are warning that the outcome might remain undecided until the eleventh hour, with a small probability of a delayed decision post-election. Factors contributing to this uncertainty include the potential for a contested or tight race and the increasing reliance on mail-in voting, which could prolong the counting process.
The aftermath of the 2000 Florida election recount serves as a cautionary tale, with the S&P 500 experiencing a more than 4% decline, a 52 basis point decrease in 10-year Treasury note yields, and a surge in gold prices as investors sought refuge in safe-haven assets.
The looming specter of a disputed election outcome or even political unrest is a source of apprehension for investors, who anticipate market challenges in such scenarios, particularly if the uncertainty persists post-election and casts doubt on the final result.
