As the US stock market continues to surge, investors are starting to wonder when the bull run will end.
But according to Wells Fargo’s investment arm, the party is likely to continue for a while yet: over the past three US presidential election years and the following year, the US share market has gained an average of 41.8 per cent.
Given it is a US presidential election year, and the US share market has already gained more than 10 per cent so far in 2023 as we approach the halfway point of the year, the omens are good.
New highs in 2025
Wells Fargo Investment Institute said that while it would be overly optimistic to expect U.S. stocks to make new highs between now and the U.S. election in November, an election-related rally is very likely to extend into 2025.
“While to date, 2024 S&P 500 performance has outpaced the median of prior election years, looking ahead to 2025 we see potential upside based on historical performance and our targets,” Wells Fargo Investment Institute strategist Jeremy Folsom wrote in a note on Monday.
The chart below shows the average performance of the S&P 500 index in election years and the year after, since 1948.
“This year’s performance is well ahead of the cycle-to-date median and is among the strongest starts on record,” Mr Folsom wrote.
He tips the S&P 500 to hit a record high of 5700 points by the end of next year, partly because the US sharemarket has rallied strongly in the lead-up to and aftermath of the past three US presidential elections, in 2012, 2016 and 2020.
The team noted that from the start of 2012 to the end of 2013, the S&P 500 gained 47 per cent, with strong gains also recorded in the lead-up to the next two US presidential elections.
“Furthermore, while cash and cash equivalents may be appealing here, given the Fed is nearing the end of its hiking cycle and should begin cutting rates, we do not believe that staying long cash is the prudent move at this time,” Mr Folsom added.