Election Years Create Their Own Patterns

In this article, Russ Koesterich discusses how momentum and election cycles may shift the impact and timing of seasonal trends.

Key takeaways

  • YTD stock returns have been driven by earnings growth, supported by a resilient economy. That said, traditional seasonal factors would indicate caution in the near-term.
  • Historically, May through September tends to be the weakest period for stocks. During election years, summer weakness often shifts to the fall.
  • Strong market momentum and a resilient economy may keep stocks in positive territory, or at least until the fall when the election gains more focus.

Stocks have recently struggled with higher rates, but year-to-date, 2024 has gotten off to a decent start. While several parts of the market, notably small caps, have been left behind, as of mid-April the S&P 500 is up roughly 6%.

While stocks continue to rise, the driver of returns has shifted. Last year’s gains were powered by higher valuations. This year a solid economy is allowing for stronger earnings, which are increasingly driving returns for US stocks (see Chart 1).