2024 US presidential election: new bank data on which election results may be best for financial markets

It’s a multi-layered and complex thing, trying to understand how US presidential elections affect financial markets. But U.S. Bank may have just cracked the code on determining which electoral result is considered the best outcome (and the worst outcome) from the perspective of the financial markets. 

Published yesterday, U.S. Bank released an article yesterday, which cited research done by U.S. Bank strategists, which analyzed both election results and market data (in the form of overall market returns and S&P 500 returns on a three-month return average) going back to 1948. 

The researchers then compared stock market returns with six potential election results: Democrats in control of both the White House and Congress; Republicans in control of both; Democrats in control of the White House with Republicans in charge of Congress; Republicans in control of the White House but Democrats ruling Congress and splits between the two parties. 

The best election results for financial markets are…

The results showed the highest market returns were found, on average, in time periods marked by two specific scenarios:

Two scenarios corresponded to positive absolute returns in excess of long-term average returns: Democratic control of the White House and full Republican control of Congress [and] Democratic control of the White House and split party control of the Senate and House.”

The worst election results for financial markets

One of the bank’s scenarios demonstrably showed the lowest returns, for both average S&P 500 returns and average 3-month returns relative to all periods: Republican control of the White House and full Democratic control of Congress.

Interestingly, this result was correlated with lower returns even than one-party win for either political party, or for an ‘all divided’ result. 

Macroeconomics matters

Despite these numbers, the bank did make mention of the fact that macroeconomic indicators and environment was worth considering more than For example, in an environment characterized by rising economic growth but falling inflation, markets tended to do well no matter who was president. The findings were closed off by saying:

The Biden-Trump presidential rematch appears set, awaiting final confirmation that will occur at the Democratic and Republican party conventions this summer… Despite the constant headlines revolving around elections, investors are well served to remain focused on factors such as economic growth, interest rates, inflation and corporate earnings when making portfolio decisions.”

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