A latest report examines how stocks have fared in election years and appears at which sectors may benefit, depending on the outcomes.

A latest report from Lincoln Financial Group examines how the stock market has performed during elections years and probes the potential impact on stocks from the 2024 elections.

Lincoln’s Market Intel Exchange report, released this week, shows that presidential election years haven’t historically moved the needle any higher for stocks usually, but, depending on the final result, certain sectors might be impacted.

Outperforming in 2024

To this point, the stock market on this 2024 election 12 months has performed higher than average.

As of July 11, the S&P 500 has returned 17%, and thru the primary half of the 12 months, it jumped 14.5%. That is the second best first half in an election 12 months behind only 1976 when the market was up 15.6%. The typical first half return in presidential election years is 7.9%.

Incidentally, the market jumped one other 3% within the second half of 1976 to complete the 12 months up 19.2%. Only twice, 1948 and 1956, did the market have a negative return within the second half of the 12 months after having a positive return in the primary half.

And only 4 of the 24 presidential election years since 1928 have ended with the stock market in negative territory at 12 months’s end, with three of them — 1932, 2000, and 2008 — coming during economic downturns.

The performance of stocks within the 2024 election 12 months can also be ahead of the 11.5% average return for the S&P 500 during presidential election years.

Historically, stocks have performed barely below the norm in presidential elections years. The typical annual return for the S&P 500 since 1928, based on the report, is 11.9%, while the common annual return during non-election years is 12%, including dividends. So, the 11.5% average return in presidential election years, while solid, is barely below average.

It hammers home the purpose that presidential election years don’t really have an effect in some way on the broader stock market. While people care about politics, markets don’t.

“It’s less about politics and more concerning the idiosyncrasies and the macro environment that influences market returns,” said Jayson Bronchetti, chief investment officer at Lincoln Financial.

Nevertheless, the report noted that politics and policy agendas can have an effect on individual sectors.

How politics could impact sectors

The economy and aspects like inflation, gross domestic product, the labor market, and rates of interest, to call a couple of, have historically had the largest impacts on corporate earnings and stock market performance.

And the Federal Reserve has never let politics impact its decisions, as just once since 1980 did the Fed not change the federal funds rate in an election 12 months. That was in 2012, when rates were at 0% to 0.25% because the nation was recovering from the worldwide financial crisis.

However the Lincoln Financial report does indicate that sectors and stocks inside them might be impacted depending on who wins the White House and Congress.

In a case where there may be a blue wave, and Democrats win the White House and control Congress, technology manufacturing, telecommunications, industrials, and renewable energy may benefit.

For tech manufacturing, continued stimulus support from the Inflation Reduction Act and the CHIPs and Science Act should bolster firms on this sector. The IRA will even help clean energy development. Meanwhile, additional broadband funding will help telecommunications stocks, and increased immigration should profit the economic sector by keeping wages low.

If there may be a red wave and Republicans control the presidency and Congress, the report said financials, defense, healthcare, and oil and gas should all get a lift.

Financials and banks will likely profit from weaker regulations and lower capital requirements, while defense and aerospace will probably surge from increased defense funding. In healthcare, decreased regulation could spur more competition and efficiency, while oil and gas firms could see stock prices jump from increased drilling and mining, the report said.

Tune out the noise

While these are broad assessments of how politics could impact sectors, they’re only likely under one party control. If there may be a split between Congress and the White House, compromise is more likely.

While it is necessary to know how policy could impact elections, it will not be prudent to make portfolio changes based on these aspects.

“[A]ttempting to position portfolios across the political outlook for certain sectors isn’t more likely to be a winning strategy, as party goals are usually not the one factor influencing company results. Investors are higher served tuning out the election noise and specializing in the long-term fundamental drivers of markets,” the report said.

Nevertheless, one final piece of information to contemplate is how small-cap stocks have done after election years.

Within the six months after a presidential election, small-caps have outperformed large-caps with a return of 11.5% in comparison with 8.4% for large-caps. The outperformance sustains for the 12 months after a presidential election, as small-caps have returned 19.8% while large-caps have returned 16.8%.

Small-caps have severely lagged large-caps in recent times, so it’s unclear if this trend will hold. But as with all of the information on this report, it is supposed to offer some insight for investing within the 2024 election. Nevertheless, any portfolio decisions needs to be based on sound research into the person stocks and the way the macro forces may impact them.