The stock market's strong year is a good sign for Biden's reelection hopes

"A strong start to the year for stocks has tended to foreshadow an incumbent victory, especially for Democrats," Ned Davis Research said.

• Strong stock market performance to start a year has historically favored incumbent presidential candidates seeking reelection, according to Ned Davis Research.
• This has been especially true for Democrats, the firm said.
• The S&P 500 is up roughly 8% so far in 2024.

The stock market's strong rally in the first two months of 2024 bodes well for President Joe Biden's re-election chances in November.

"A strong start to the year for stocks has tended to foreshadow an incumbent victory, especially for Democrats," Ned Davis Research strategist Ed Clissold said.

The S&P 500 has surged nearly 8% so far this year, extending last year's strong rally driven by continued disinflation, the outlook for interest rate cuts from the Federal Reserve, and solid economic growth.

All of those factors, if they persist over the next few months, could help give Biden a boost in his approval ratings, which have been weighed down various issues including elevated inflation, his age, and his stance on the Israel-Hamas conflict.

Historically, the stock market has usually been weak in the early year of a Presidential election, with a median drop of 1%, but when an incumbent party wins the election in November, the early part of the year sees an average gain rather than a loss.

"When an incumbent Democrat has gone on to win, the DJIA has risen a median of 2.6% in the first two months of the year versus a 6.2% decline when an incumbent Democrat has lost," Clissold said.

Clissold acknowledges that two months of stock market performance is by no means a determining factor of a Presidential election, but it's interesting nonetheless.

"A two-month window eight months before the election is hardly the most robust indicator, especially considering how many factors beyond the stock market go into voters' decision-making process," Clissold said.

But, if the stock market is rising ahead of the November election, there's a good chance that means the economy is doing well and consumer confidence is improving, so that backdrop could ultimately provide a tailwind to Biden's re-election chances. 

"From a 30,000-foot perspective, a better economic backdrop would help Biden's chances," Clissold said.