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2024 SEI ® Data as of 12/31/2023 unless otherwise indicated. 14 Presidential election years have tended to be good for the U.S. stock market, as represented by the S&P 500 Index, with equities rising 70% of the time, and sporting an average price-only gain (excluding dividends) of 6.4% annually. Since the end of World War II (the first postwar presidential election was held in 1948), the performance has proved to be even better; stocks have recorded gains 83% of the time, with an average increase of 7.3% per year and a median advance of 10.7%. This solid performance coincides with the tendency of monetary and fiscal policy to be expansionary in the final year an incumbent President's term. Perhaps this is mostly coincidence, but there have been times (notably in 1972, when Fed Chairman Arthur Burns maintained an inappropriately expansionary interest-rate policy to aid Richard Nixon's re-election effort) when policy leaned in favor of the incumbent party. Equities appear to perform best when the incumbent Republican (or his Republican successor) wins the election. Continuity seems to be an important consideration. The S&P 500 Index (price only) has advanced 9.5% on average, when the incumbent Democrat wins. While it seems as if the stock market posted a below-average performance in cases where the incumbent party loses the election, this result was skewed by the Global Financial Crisis in 2008, when John McCain, the Republican nominee, lost to Barack Obama, the Democratic Party candidate. That year witnessed a 38.5% price decline in the S&P 500 Index. Excluding the 2008 experience, the S&P 500 Index has posted a 9.1% average yearly gain in those years when the incumbent party loses the election. The outcome of the U.S. presidential election might thus have little impact on the direction of the overall market, but it could have a profound effect on specific sectors and industries. If Trump wins, the executive orders issued by President Biden will almost certainly be reversed. Trump most likely will issue his own set of executive orders. The downside to these potential policy reversals is the uncertainty it engenders for business. It is hard to invest in manufacturing plants and long-lived equipment that will take years to provide an adequate rate of return if the rules change dramatically over the expected life of that investment. Animal spirits running high As 2022 came to a close, investor sentiment was quite subdued following a year of sharp declines in stock and bond prices. Surveys of investor sentiment, which we highlight in Exhibit 19, were near historically low levels for both institutional and retail investors. Now, investor optimism has rebounded toward the highs registered in 2021. Investor sentiment typically follows the performance of the stock market. Although the investor sentiment numbers are very volatile, peaks and troughs occur around the peaks and troughs of the year-over-year change in the S&P 500 Index. The percentage of bullish investors are currently approaching highs that have been recorded on only a few occasions since 2009—in January 2011, November 2014, January 2018, and April 2021. Twelve months later, stock prices, as measured by the S&P 500 Index, were either up slightly or down year-over-year. Exhibit 19: Maybe we're too happy Source: American Association of Individual Investors, S&P Global, SEI. The sharp contraction in price-to-earnings (PE) multiples that occurred in 2022 was also notable. At the end of 2021, the forward price-to-earnings ratio on large-cap U.S. equities was 22.5, well above the 10-year average of 18.1. At the end of 2022, the forward PE multiple had contracted to 17.1, representing a modest discount to its longer-term average. The technology sector bore the brunt of this correction, tumbling from a year-end 2021 value of 29.3 to a year-end 2022 reading of 19.4 (a level slightly below its average for the previous 10 years). At the time, we thought any rally that might take hold from these more attractive levels would stall out rather quickly. It was our view that bond yields would rise further in 2023, which would place additional downward pressure on the PE multiples of highly valued growth stocks, including technology. At the end of 2022, the yield on the benchmark 10-year U.S. Treasury note was 3.88%. 0 10 20 30 40 50 60 -60 -40 -20 0 20 40 60 80 100 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Percent bullish, 4-week moving average Percent change in S&P 500 Index price return over 12-month span Investor sentiment vs. S&P 500 Index price performance S&P 500 (LHS) AAII Bullish Sentiment (RHS)

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