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Traders could be forgiven for breaking out their champagne glasses, even though 2024 isn't halfway done yet.
US stocks have leaped from all-time high to all-time high this year: the S&P 500 has surpassed its own record a staggering 31 times since January. That equates to a new all-time high about every four trading days.
Investors have shrugged off elevated interest and inflation rates, a chaotic political and global environment and general economic uncertainty to make 2024 the best start to an election year on record.
What's happening: Presidential election years are typically good for markets.
The S&P 500 alone has generated an average return of 7% during presidential election years since 1952, according to LPL Financial. If you limit that to election years in which the incumbent president is running for reelection, the average jumps to 12.2%.
This year, the index has already far surpassed those average gains. The S&P 500 is 14.6% higher year-to-date — the best start to an election year on record, according to Goldman Sachs — and up nearly 31% from its October 2023 low at 4,117 points.
So why is this election cycle different from all the others that have gone before?
Gains are typically higher when incumbent presidents run for reelection, most likely because investors crave stability. And this election is the first since 1892 that the nominees of both major parties have occupied the White House, notes Ed Clissold, chief US strategist at Ned Davis Research.
If one incumbent running for office reduces uncertainty, then two incumbents really reduces uncertainty. That could pull the typical year-end election relief rally forward, said Clissold.
A reason to celebrate: Not only are stocks up, they're rarely going down.
It's been 333 days since the S&P 500 recorded a decline of 2% or greater, which is the longest stretch since February 2018, wrote Goldman Sachs' Scott Rubner in a recent note to clients. His outlook for the latter half of the year remains positive — a good first half means a "very good" second half, he wrote.
"The impressive market rally continues, notable not only for its strength but also for its stability," wrote Nationwide's chief of investment research, Mark Hackett, in a note Friday. "[T]here is no reason that the steady march higher can't persist, particularly as we approach the tailwind from election seasonality."
Last week's rally was broad, assuaging some concerns from investors that recent gains have been concentrated in a few big names like tech darling Nvidia, which is up more than 155% so far this year.
The equal-weighted version of the S&P 500 rose 1.12% and the small cap Russell 2000 gained 0.79% while the tech-heavy Nasdaq was flat on the week.
The sustained gains are causing some analysts to raise their year-end targets for the S&P 500. Scott Chronert, research head of US equity strategy at Citigroup, raised his year-end target to 5,600 from 5,100 last week.
Analysts at Goldman Sachs, Barclays, Deutsche Bank and UBS have also revised their expectations for the broad-based index higher.
Yes, but: Market volatility in an election year tends to pick up in October and there are many months left in this cycle with potential surprises to come.
Thursday brings CNN's televised debate between President Joe Biden and former President Donald Trump. "There is plenty of scope for big headlines and for the candidates to gather some momentum or see it go into reverse," wrote Deutsche Bank's Jim Reid.
There's also the prospect that investors get complacent and begin to take the current bull market for granted.
"The longer optimism remains high, the bigger the risk that it turns into complacency and leaves the market vulnerable to the next piece of negative news," said Clissold with Ned Davis Research.
"An autumn pullback fits well time wise with potential downside earnings revisions, make-or-break decision time for the Fed, and election uncertainty. The risk is that one or more of those catalysts prove to be longer lasting, turning a pullback into something more," he said.
A global view: The United States isn't the only country with an upcoming election. France and the UK both face elections in the coming weeks.
While opinion polls suggest the opposition centre-left Labour Party is heading for a comfortable victory in the UK on July 4, the situation in France is much more uncertain, and markets have been rattled.
French President Emmanuel Macron called a snap parliamentary election after his centrist Renaissance party lost heavily to the far-right opposition in European elections.
The first round of the French election will be held on June 30, with a second round on July 7.
"Political uncertainty is a near-term headwind to both sentiment (reflected through financial markets) and, now, activity," wrote Katie Nixon, chief investment officer for Northern Trust Wealth Management, of the upcoming elections. Until July, "we can anticipate volatility in European equity and debt markets."
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