One of the key things investors will be watching is the 2024 US elections, specifically, the presidential race. As part of Yahoo Finance's 2024 Investor Guide, markets reporter Jared Blikre joined Yahoo Finance Live to analyze how stocks tend to trade in election years based on historical trends.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Video Transcript

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BRAD SMITH: The 2024 presidential election, less than a year away, but some investors fear the race could create more market instability. Given the backdrop of economic concerns, particularly fears of a recession, it raises the question of how stocks typically perform during an election year and whether 2024 will be different. Our very own Jared Blikre has the breakdown for us as part of Yahoo Finance's 2024 investor guide. Hey, Jared.

JARED BLIKRE: Thank you, Brad. Let's take a look at what usually happens with stocks. And this goes back 95 years, almost a century of price data here. And the big takeaway is stocks go up.

You can see it's from the lower left to the upper right, not always smooth sailing. Around the September, October period, that's where we have historically a lot of crashes and that brings down the average. But as you were saying, Brad, we want to see what happens in presidential terms and this is an election year.

And what I've done here, that previous chart went back to 1928. This goes back to 1949. So it is a post World War II era. If you take a look, what jumps out to me is that February is a negative month no matter how you slice and dice it here, looking at some average negative returns there.

But in January, you can see for all years, well, we tend to average about 1%. But in the fourth year of the presidential cycle, and especially when there's a Democrat, we don't have as many gains. Then we have March and April. And for all the sayings sell in May and go away, we really don't see that much pressure although the averages are pretty low.

And then we have some strong summer months, June, July, August. And this is where we start getting into the prime time crash season. This is when the VIX, kind of, explodes some years because we do have the market crashes, Black October being one that happened in 1987.

But in September, we do have average losses for both the overall market since 1949 and the fourth year of the presidential cycle. But when you filter by Democrats only, interestingly enough, September ends up positive. Now, we don't have a huge sample size here, so take that with a grain of salt. But I did think that was interesting.

When it comes to October, the average is positive. But then when you get to the presidential cycle, still it's skewing negative to very small gains. But then what sticks out here, guess what, November usually the best month of the year. And we've seen that in play this year, but also in the presidential cycle those election years tend to be even better. And if you take a look at the fourth year of the presidential cycle with a Democrat in office, those are the best gains on average by far.

And a couple of notes here, we had some pretty big changes in the stock market when there have been changes in office. Some of the worst performers here are when George W Bush came to office and also Barack Obama. But I would say with a grain of salt you've got to take that because the global financial crisis was fully in swing.

And then just another note based on that, because we often ascribe a lot of performance in the stock market to what the president is doing. And that was, kind of, a thing that President Trump made a feature of his office and his campaigns, but that is not always the case. And in fact, the president probably has a lot less influence on the economy than a lot of people think.

I've been showing what happens with the stock market on average. And I want to show what happens with the VIX on average and this goes back to the beginning of the VIX 1990. And in cyan, we have what happens. And this is going to be a map for the new year as well because this is an average.

And in purple, this is what actually transpired this year. And I'm just putting this overlay to show you how well seasonality really worked this year. A lot of these peaks and valleys, they match up not necessarily exactly in the right time.

But you can see there's a lot of synergy between these movements here. So the bottom line is we do tend to get a drop in volatility at the end of the year, which is what we're expecting. And then we pick up back in January.

Final note on volatility because the VIX has been trending and holding under 15 for a number of weeks, I thought I'd show a longer term view of the VIX. This is actually the S&P 500. And in cyan dots, I have colored when the VIX is lower. And this goes all the way back to the 1980s.

And you'll find that these periods of the low VIX tend to be secular bull markets in stocks. So we had this period in the mid 90s. We had this period in the 2000 in the run up to the global financial crisis. We had the post GFC era and there are a couple of different segments in there when we had a VIX under 15.

And then at the very hard right edge, we have it again. So thinking about the new year, yes, we can have some hiccups with the election. But as we've seen, the averages for all years tend to end positive in December.

What happens with this year is going to be decided not only with the Santa Claus rally today. And I know we're thinking far ahead. But as they say, the way January goes, it tends to go the entire. So we have a positive January, overall, probably looking at end of year gains in December.