It’s Happening Again.

The Impact of Presidential Elections on Financial Markets

Historical Context of Market Peaks and Elections

• In November 1928, Herbert Hoover was elected president during a significant stock market rally, which preceded the Great Depression marked by Black Tuesday.

• Nixon's election in November 1972 coincided with a peak in the S&P 500 that would not be revisited for eight years, similar to Bush's election in November 2000 at the height of the dot-com bubble.

• These elections (1928, 1972, and 2000) were pivotal turning points for financial markets, leading to declines after extended periods of prosperity.

Current Economic Sentiment Ahead of the 2024 Election

• As we approach the 2024 elections, despite a strong stock market rally, consumer sentiment is notably low—one of its lowest since the Great Financial Crisis.

• The University of Michigan survey indicates that current consumer sentiment levels have historically been associated with economic recessions since around 2020.

Political Promises and Economic Reality

• Trump's presidential campaign focused on promises of stronger economic growth through tax cuts and deregulation; these policies previously boosted investor optimism.

• Similar optimism existed before past elections (1928, 1972, and 2000), where interest rates were also around 5%, indicating potential economic downturn risks.

The Role of Interest Rates and Yield Curves

• An inverted yield curve occurs when short-term interest rates exceed long-term rates; this has historically signaled impending recessions following such inversions.

• Past presidents could not significantly alter recession trajectories post-election due to pre-existing economic conditions set before their terms began.

Can Trump's Policies Prevent an Economic Downturn?

• Trump argues that his re-election could avert another Great Depression by implementing favorable economic policies like tax cuts and deregulation.

• However, historical precedents show that similar policies from Hoover (1928), Nixon (1972), and Bush (2000)—all proponents of lower taxes—did not prevent subsequent recessions.

Conclusion: Market Reactions Post-Election

• Ultimately, while presidential policies can influence business cycles temporarily, they cannot prevent recessions entirely.

• The stock market often remains optimistic post-elections; for instance, it continued rising after both Hoover's election in '28 and Nixon's in '72 despite later downturns.