Presidential Elections and the Stock Market: A Historical Pattern Emerges
The S&P 500 is widely regarded as the benchmark for the US stock market, comprising 500 large companies across 11 sectors, representing approximately 80% of domestic equities by market value. This diversity makes it a reliable indicator of the US stock market’s performance.
A Predictable Pattern
Interestingly, the S&P 500 tends to generate above-average returns during the 12-month period following presidential elections, regardless of the outcome. This phenomenon has been observed over the last four decades, with the index returning a median of 17% during this period.
Historical Data Reveals a Compelling Trend
The chart below illustrates the S&P 500’s performance during the 12-month period following US presidential elections over the past four decades.
| Year | S&P 500 Return (Next 12 Months) |
| — | — |
| 1984 | 13% |
| 1988 | 23% |
| 1992 | 10% |
| 1996 | 32% |
| 2000 | (22%) |
| 2004 | 7% |
| 2008 | 4% |
| 2012 | 24% |
| 2016 | 21% |
| 2020 | 38% |
| Median | 17% |
What Drives This Outperformance?
One possible explanation for this trend is the excitement surrounding policy changes discussed during presidential and congressional campaigns. As investors anticipate these changes, the stock market tends to react positively.
Applying Historical Data to the Current Situation
At the time of writing, the S&P 500 had advanced around 3% since the presidential election. If its performance aligns with the historical median, the index could return an additional 14% by November 2025.
Additional Support for a Bullish Outlook
Back-tested data from Goldman Sachs suggests that the S&P 500 would have gained 16% annually during periods where Republicans controlled the presidency and both houses of Congress, as will be the case in 2025.
Economic Fundamentals Look Promising
Recent data points suggest the economy is in good shape, with strong consumer spending, retail sales, and low unemployment. Consumer sentiment has also trended higher for four consecutive months.
Wall Street Expects Robust Earnings Growth
S&P 500 companies are expected to report earnings growth of 15% in 2025, an acceleration from the projected 12% growth in 2024. Strong corporate earnings could drive the stock market higher.
Valuations Remain a Concern
However, investors have already priced in some of this growth, with the S&P 500 trading at 22 times forward earnings, a premium to the 10-year average.
The Bottom Line
Investors should be cautiously optimistic about the coming year. History suggests the S&P 500 could perform well in 2025, and the strong economy supports this idea. However, elevated valuations could lead to a correction or bear market if S&P 500 companies fail to meet Wall Street’s earnings estimates.
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