Your Election-Year Investing Playbook, Part 1

By TradeSmith Research Team

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The New Year is here, bringing with it questions of what’s ahead for stocks. So today we’ll shine our evidence-rich spotlight on what you can expect for Q1.

But first, it’s important to rewind the tape a bit…

2023 offered a masterclass in the value of financial media headlines.

First, they told us a surefire recession was ahead. Next, they had us believe unemployment would skyrocket. Even worse, they sold us on tales of a coming economic collapse.

Fortunately, none of those anointed prophecies rang true. Instead, stocks posted double-digit gains across the board, with the S&P 500 surging nearly 25%!

When it comes to the mainstream media, be careful what you consume… and always be suspect of grandiose predictions.

Instead, focus on data, history, and evidence-based analysis like we share here in TradeSmith Daily. That — not fearmongering — is what will help you navigate any environment.

Great examples include our non-consensus call to buy beaten-down small-caps on Oct. 19. Depressed valuations pointed to a monster bullish setup, which teed up a 19% gain in small caps since that post.

Another instance was the voice of reason to always remember to buy in November. History proved that November ignites a ferocious rally, with data going back to the ’80s.

Since that post on Nov. 2, the S&P 500 delivered, ripping more than 10%.

With historical proof offering a guiding light in the past, let’s construct a framework to forecast what potentially lies ahead for markets in the coming months:
  • We’ll start out by studying how the market tends to perform in the first quarter.
  • Then, we’ll take it a step further, looking at election years over that same time span.
There’s a strong historical pattern to note…

Stocks Often Perform Well in the First Quarter

You’ve likely heard that markets average 10% a year going back decades. This is absolutely true.

For the last 45 years, the S&P 500 delivered a 10.35% average gain each year.

And part of that strong performance is the fact that Q1 gains 2.15% on average:
Green shoots in Q1 likely doesn’t come as a surprise. Lots of new money is put to work early in the year with 401(k) and IRA contributions.

Not to mention, fund managers begin placing bets on their best ideas as well.

So, should we just blindly pour money in the stock market given this backdrop? Not really…

That’s because 2024 is unique in that it’s an election year…

The 2024 Election-Year Investing Playbook

If you think election years are smooth sailing… think again. History shows a lot of mudslinging on the equity front in the first quarter.

Since 1980, there’ve been 11 presidential elections.

Here are a few facts for the S&P 500 during election years back to 1980:
  • The first quarter falls an average of 1.49%, drastically underperforming the average 2.15% Q1 gain for all years.
  • The second quarter kicks off a stronger environment with 3.09% gains, followed by 2.29% rips in Q3, and 1.19% jumps in Q4.
  • The average full-year gain for stocks is 5.81%, drastically underperforming the average 10.35% market average.
A dip of 1.49% in Q1 may seem scary, but notice that these election years include some of the nastiest pullbacks in recent memory — including the Great Financial Crisis of 2008 and the COVID pandemic of 2020. Those one-off scenarios drastically skew the historical results. And they aren’t likely to take shape this year.

But even if we’re in for first-quarter doldrums, the above graphic shows a very important theme: You’ll want to buy the dip in Q1 and ride the rip beginning in April.

Given that we’ve just witnessed a breakneck rally since the Oct. 27 low, it’s only natural to assume that level of exuberance should subside.

After all, stocks aren’t going to average 13.7% every two months forever (what the S&P 500 did from November to December).

So, take this potential pullback for what it truly is — another great buy-the-dip opportunity.

If you’re sitting on cash patiently waiting for the next great setup, chances are you’ll get one in the weeks ahead. That’s welcome news!

But you’ve got to prepare now. Use TradeSmith’s arsenal of analytics to see which areas of the market rank best.

If you’re like me and care about all-star stocks, get started with the TradeSmith Investment Report, which just outlined an amazing company poised to benefit for years from the A.I. tailwind.

Election years aren’t ones to fear… They’re ones to cheer.

Today’s message is Part 1 of a three-part series, continuing next week, on how to position yourself for this election year.

Be on the lookout for a deeper dive into which areas to focus on in 2024…


Lucas Downey,
Contributing Editor, TradeSmith Daily