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The Most Important Chart of the Year

This is my first piece for 2024. I spent the summer with my wife and two boys - food, beaches, nature, adventure, and I managed to get back onto my bike. One of my many highlights was finding this little gem of a place - Bridgewater Bay. I've been going down to the Mornington Peninsula for decades now, and only found out about this place recently. It's a must visit! Remember to bring your reef shoes with you to get the most out of the place. How good is this...

Let's get onto markets. 2023 was insane. It's another year the experts got it all wrong. The pessimists, the perma-bears, the gurus, the talking heads. Dead wrong. Here's the year in headlines:

Source: Bespoke

And notwithstanding the wall of worry, the stock market was up +25% for the year.

There is one chart that I feel is probably one of the most important charts of the year. And that's the four-year presidential cycle. It's 2024, and I have no doubt the November presidential election will soon be dominating headlines and causing jitters.

Regardless of who is in the White House in 2025, we do know the S&P 500 has generated an average gain of about 7% during presidential election years.

Source: LPL Research, FactSet 12/05/23 (1950–2022)

Historically, the stock market has risen an average of 6.8% (it's been stronger when a Democrat has been the incumbent during election years) over the course of presidential election years since the end of WWII. In fact, year four of presidential cycles has been the second best of the four-year cycle. The third year has averaged a whopping 17%. And with 2023 done and dusted, it's certainly met and exceeded the long-term average.

Here's how the stock market performs during presidential election years including the performance by incumbent. The index gains on average 6.8% during all years, 3.9% with a Republican incumbent, and 10.1% with a Democrat in charge.

Source: Bespoke

Here's how Biden's Presidency has been tracking thus far.

Source: Bespoke

Seems to be tracking fairly closely to the long-term average.

If you think this is clutching at short straws, consider this. Three-month returns before an election have predicted 20 of the last 24 elections. In other words, when stocks are up three months before election day, the incumbent typically wins. Conversely, when stocks fall during the three-month period before election day, the incumbent tends to lose. It’s early to start thinking about that, but rest assured it's all we'll be talking about come August.

The bottom line is that history suggests that stocks will likely move higher in 2024. Is it a shoo-in? Of course not. There are no guarantees in investing.


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