The S&P 500(SNPINDEX: ^GSPC) has enjoyed a nice run since Donald Trump won the presidential race on Nov. 5, 2024. Although the widely followed index pulled back after the Federal Reserve hinted fewer rate cuts might be on the way than expected, it's now rebounding and is only around 1% below the record high.
How long will the "Trump bump" for the stock market last? Here's what history shows.
Image source: official White House photo by D. Myles Cullen.
Presidential bumps and slumps
How does the stock market typically react after a new president is elected? And how long does positive momentum last into the new president's term? There hasn't been a consistent theme.
Since 1960, we've had 10 new incoming U.S. presidents. I didn't count Lyndon B. Johnson since he served as president after John F. Kennedy's assassination before winning the presidency in 1964 in what was essentially a reelection. The S&P 500 rose in only half of those cases.
After JFK was elected in 1960, the stock market delivered a strong gain of nearly 9% by his inauguration on Jan. 20, 1961. While the S&P 500 continued to enjoy momentum during the first year of his term, it sank in 1962.
However, there were no bumps after the elections of Richard Nixon in 1968 and Jimmy Carter in 1976. The S&P rose a couple of percentage points following Ronald Reagan's election in 1980. But the market began a sharp sell-off during the first year of his first presidential term.
George H.W. Bush inherited a strong economy and stock market from Reagan. The S&P 500 increased nearly 5% between his election and inauguration. The honeymoon didn't last long, though, with a steep market decline in October 1989.
Stocks rose a little after Bill Clinton was first elected in 1992. However, that slow start gained momentum that lasted for years. The S&P didn't decline by 10% or more until 1997 -- and then only briefly. Clinton presided over one of the strongest bull markets ever.
By the time George W. Bush narrowly won the presidency in 2000, though, the joyride was over. Stocks fell after his election as the dot-com bubble continued to burst. Barack Obama's election in 2008 also came at a major negative inflection point for the S&P 500. Stocks plunged nearly 20% between Election Day and his inauguration.
The first "Trump bump" came in 2016 with the index rising close to 6% leading up to his first inauguration. This bull market lasted until the second half of 2018 when stocks fell sharply. By mid-2019, though, the losses were erased with the S&P continuing to soar until the pandemic caused a huge slump.
Joe Biden enjoyed the biggest presidential bump of all as the S&P 500 soared 14% between his election and inauguration. The market kept up its winning ways during the first year of Biden's presidency but sank in 2022.
Lessons from history
So what can we learn from the history of presidential bumps? Not much. Over the last seven decades, the chances of the S&P 500 rising after the election of a new president are the same as the chances the index declines.
In three of the five cases when the market rose between Election Day and inauguration day, the momentum didn't last very long. In only one case (during Bill Clinton's presidency) did a bull market extend into the second presidential term.
Probably the most important lesson from history is that it doesn't serve as a reliable guide for how the stock market will perform during a new presidential administration. Macroeconomic factors have varied so much in the past that there is no clear historical pattern for stocks.
For more years
A recent survey by CNBC found that most investors believe the stock market will flourish in a second Trump term. But that sentiment could be nostalgic thinking at work because many remember the S&P 500's gains during much of Trump's first four years in office.
It's important to note that interest rates are higher as Trump returns to the White House than they were his first time as president. He also appears to be more adamant about imposing steep across-the-board tariffs than he was eight years ago. Many economists believe these tariffs will hurt the U.S. economy, which could cause stocks to decline.
I think investors should focus on a longer time horizon than one presidential term, regardless of who sits in the Oval Office. We can't know for sure how the stock market will perform over the near term. Over the long term, though, the S&P 500 has always delivered solid returns. The more years in your investment period, the better your chances of success.
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Keith Speights has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
