Key takeaways
With the 2024 election season upon us, voter preferences are likely to be influenced in part by the state of the economy and markets.
The S&P 500 is up roughly 48% since Biden took office in early 2021.
The U.S. economy has proved surprisingly resilient in the face of efforts by the Federal Reserve to slow growth to lower inflation.
Whether it is fair or not, investors often look at the state of the economy as the measure of a President’s effectiveness. It is a factor that potentially relates directly to their own lives that governing policies may impact. In 2024, the electorate appears to be looking not just at the U.S. economic growth rate, but other factors as well, such as rising living costs and the strength of the labor market.
President Biden announced in July 2024 that he would not seek re-election, and his vice president, Kamala Harris, became the Democratic party nominee, running against Republican former President Donald Trump. This may alter the focus on the administration’s economic record as the 2024 election campaign nears election day.
President Biden’s term began with the economy in the early stages of recovery from the COVID-19 pandemic. The economy was in the midst of a strong recovery in 2021 when inflation began to emerge as an issue. This caused the Federal Reserve (Fed) to alter its near-zero interest rate policy, raising the federal funds target rate it controls by more than 5% between March 2022 and July 2023. That change was intended to slow economic growth to lower inflation. Economic growth moderated from early 2022 on but the economic expansion continues.1
Inflation became a significant issue during the Biden administration, peaking at 9.1% in June 2022 before beginning a decline to around 3.0% by mid-2023. However, only in July 2024 did inflation, as measured by the Consumer Price Index, drop below 3%.2 Also during this time, the U.S. labor market remained strong, wage growth began to exceed the inflation rate, and consumers maintained consistently solid spending, which proved to be the most important factor driving economic expansion.
In addition, government spending was a positive contributor to economic growth. “Spending programs that passed in the first two years of the Biden administration influenced the rate of economic growth,” says Rob Haworth, senior investment strategy director at U.S. Bank Wealth Management. These included an infrastructure investment package and the Inflation Reduction Act, which provided incentives for green energy projects. Those dollars started to have more impact in 2023, and may again in 2024, according to Haworth.
The stock market during Biden’s tenure trended higher, but with significant volatility. The benchmark S&P 500 generated impressive returns of 28.7% in 2021 and 26.29% in 2023. Sandwiched in between was a bear market, as the S&P 500, at its low point, dropped 25% in 2022. 2023’s stock market recovery was narrower in nature, driven primarily by a small group of S&P 500 sectors dominated by technology-oriented stocks. In 2024, the S&P 500 repeatedly reached new all-time highs, mixed with short periods of market volatility. Year-to-date through August 28, 2024, the S&P 500 gained 18.31%.3
Since Biden took office, the S&P 500 is up 48%, with less than five months left in the President’s current term.3 That ranks as a positive outcome, but slightly lags returns generated in each of the three previous four-year Presidential terms.
The markets strong rally since late 2022 along with rising home values has created what Haworth says is a “wealth effect” for consumers. “This gives them more room to spend nominally,” says Haworth. “However, recent surveys showed a decline in consumer confidence, which might be related to inflation’s persistence.”
The bond market looks significantly different in the fourth year of President Biden’s term, compared to when he took office. This primarily occurred because the Fed, in a 16-month period, significantly hiked the short-term federal funds rate it controls. In response, yields on the benchmark 10-year U.S. Treasury note, which were below 1% at the outset of 2021, rose as high as 4.98% in October 2023. In 2024, 10-year Treasury rates stood above 4% for most of the year, but in August dropped below that threshold.4 While bonds generated negative total returns in 2022, returns were modestly positive in 2023. After spending much of 2024 in negative territory, the broad Bloomberg Aggregate Bond Index rallied in August, with a year-to-date 3.47% total return.5 Bond prices rise as bond yields decline.
“Investors have poured money into cash vehicles offering 5% yields, but they need to be cautious,” says Rob Haworth, senior investment strategy director at U.S. Bank Wealth Management. “Once the Fed decides to begin cutting interest rates, yields on short-term vehicles will decline.”
“Investors have poured money into cash vehicles offering 5% yields, but they need to be cautious,” says Haworth. “Once the Fed decides to begin cutting interest rates, yields on short-term vehicles will decline.” Haworth recommends income-oriented investors begin to lock in current high rates on longer-term bonds.
Although the political and policymaking environment draws headlines, particularly in an election year they have not been major capital market drivers. Investors appear more focused on Fed policy, economic data and corporate earnings.
“We had much better economic growth than many expected in 2023, and it remains on track in 2024, as to this point, fueled by a strong labor market,” says Haworth. Capital markets appear to be increasingly focused on pending Fed interest rate cuts, with the expectation that this may boost capital markets.
President Biden, backed by a Democratic-controlled Congress, successfully passed a number of legislative initiatives in his first two years in office. The midterm elections in 2022 changed the legislative landscape. While Democrats maintained narrow control of the Senate, Republicans won a slim majority in the House. “With power split between two parties, legislative initiatives have been limited,” says Kevin McMillan, head of state and federal government relations at U.S. Bank. However, bi-partisan support in April 2024 led to approval of a funding package to, among other things, support Ukraine's military defense against Russia and to aid Israel as well in its conflict with Hamas. However, it took months to gain final passage of these and related measures.
The political power divide led to contentious negotiations that resulted in last minute approval of an agreement to allow the government to issue additional debt, and to an overdue approval of the 2024 fiscal-year budget. However, the two parties did manage to reach agreement in both instances. However, fiscal year 2024 ends on September 30, and Congress has yet to pass a budget for the next fiscal year that begins in October. Action will need to occur by that date to avoid a partial government shutdown.
Haworth is skeptical that continued partisan differences in Washington will have a major impact on markets. “The market is currently at a wait-and-see point about the 2024 election, seeking more clarity about the candidates, possible election outcomes and the potential economic and market ramifications,” says Haworth. “Yet that election uncertainty may become a growing capital market concern.”
It’s important to note that several factors contribute to market performance, and it’s not strictly a reflection of the individuals who wield power in Washington or the outcome of any given election. Investors are best served by maintaining a broader perspective.
Depending on one’s goals and time horizon, today’s investor might consider:
Regardless of how events play out during the 2024 election cycle, a sound investment strategy is to focus on a properly diversified portfolio that is attuned to your goals, time horizon and risk appetite.
Have questions about the economy, capital markets or your finances? Your U.S. Bank Wealth Management team is here to help.
The U.S. economy maintained positive growth through the first three years of President Biden’s term. The economy, as measured by Gross Domestic Product (GDP), and reported by the U.S. Bureau of Economic Analysis, grew by 5.8% in 2021, 1.9% in 2022 and 2.5% in 2023. In 2024’s first quarter, GDP growth measured 1.4% (annualized rate), but expanded at an annualized 3.0% rate in the second quarter. Beginning in 2021, an inflation surge raised economic concerns for many Americans. Living costs, as measured by the Consumer Price Index reported by the U.S. Bureau of Labor Statistics, rose 7.0% in 2021 and 6.5% in 2022 before moderating to 3.4% in 2023. By the end of July 2024, inflation stood at 2.9% for the previous 12-month period. Keep in mind that many factors beyond the policies of the President or other lawmakers, have a bearing on the state of the economy.
It’s important to note that many factors affect the economy, though policies put forth by the President may have been one of those factors. In the first two years of his term, President Biden pushed through a number of major initiatives, including an infrastructure spending plan and the Inflation Reduction Act, which included incentives for green energy projects. “Spending programs that passed in the first two years of the Biden administration recently influenced the rate of economic growth,” says Rob Haworth, senior investment strategy director at U.S. Bank Wealth Management. However, many other factors, such as strong consumer spending, likely had a more significant impact.
Over the course of President Biden’s term, the U.S. stock market experienced whipsaw-like volatility. The benchmark S&P 500 generated impressive returns of 28.7% in 2021 and 26.29% in 2023. Sandwiched in between was a bear market, as the S&P 500, at its low point, lost 25% of its value in 2022. Through late August 2024, the S&P 500 gained 18.31%, according to S&P Dow Jones Indices. The market in 2021 benefited from the U.S. economy growing at its fastest pace since 1984. However, rising inflation and the Federal Reserve’s (Fed) aggressive response to it, dramatically raising the short-term interest rates it controls, took a toll on stocks in 2022. The stock market recovery since was narrower in nature, driven primarily by a small group of S&P 500 sectors dominated by technology-oriented stocks. In 2024, other sectors have participated in the market’s rally and the S&P 500 has repeatedly reached new all-time highs.
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