Challenging Goldman’s Prediction of a Post-Election Stock Surge:
Goldman Sachs indicates that the expected rise in U.S. stocks following the elections may not materialize.
Although historical market performance often shows a post-election increase,
the past is not a guaranteed indicator of the future.
This report explores the fundamental reasons why this expectation might be misguided.
Content
Historical Performance
Small Samples
Impact of Major Events
Possible Scenarios
Wall Street’s Expectations
Importance of Checks and Balances
Historical Performance of U.S. Stocks in Election Years
The U.S. stock market typically performs well during the final months of presidential election years,
often attributed to the fading political uncertainty,
which provides relative stability on Wall Street.
Scott Rubner of Goldman Sachs noted that the S&P 500 index could rise 7%
to around 6270 points by year-end.
However, certain fundamental factors could prevent this increase.
Small Samples and Uncertain Outcomes
Most observations about the seasonal market performance in election years rely on limited samples,
covering only 24.
Data shows that stocks usually decline in
September and October and then rebound in the last months of the year.
Still, this pattern might be due to regular calendar factors rather than direct links to election years.
Impact of Major Events on Results
The best post-election rally occurred in 2020 after Joe Biden’s victory,
as markets focused on the availability of COVID-19 vaccines and economic recovery.
Similarly, in 1928, markets saw a major rally following the Republican candidate’s victory,
only to crash shortly after with the onset of the Great Depression.
This underscores the importance of historical context in market performance.
Possible Scenarios for the Upcoming Elections
Polls suggest three possible scenarios for the upcoming election:
a complete Republican victory led by Donald Trump,
a divided government with Trump in power,
or a divided government with Kamala Harris as president.
While there are chances for a Trump victory and its potential impact on markets,
the situation in 2024 is entirely different from 2016,
when economic conditions were more favorable.
Wall Street’s Expectations and Elements of Uncertainty
Some on Wall Street believe that Trump’s return to the White House could spark a market rally,
but today’s economic situation is different.
The U.S. has high inflation and high price-to-earnings ratios compared to 2016.
Trump’s new plans could also lead to a larger fiscal deficit and additional inflationary pressures.
Importance of Checks and Balances
If Trump wins the presidency but the Democrats hold the House,
investors may feel reassured by the system of checks and balances.
Conversely, Kamala Harris leading a divided government could also stabilize the markets.
Conclusion
While some optimistic predictions about U.S. stocks remain,
forecasting market performance after elections is challenging.
The past does not necessarily dictate the future,
and many economic and political factors influence market direction.
Challenging Goldman’s Prediction of a Post-Election Stock Surge
