The resilience of the U.S. stock market continues to defy expectations, setting records despite an array of alarming geopolitical, financial, and economic factors. With the 2024 presidential election looming, skyrocketing gold prices, a collapse in mortgage applications, and rising national debt — coupled with global tensions in Ukraine and the Israel-Palestine territories — many would expect the markets to falter. Instead, U.S. stocks have shown a remarkable ability to thrive, reflecting both their unique structure and investor confidence in American financial markets.
Record-Breaking Market
The U.S. stock market’s unprecedented growth is encapsulated by its dominance in global market capitalization. As of this year, U.S. stocks represent a staggering 48.8% of the global market cap — nearly double what it was 15 years ago. This growth has been driven by strong market performance, particularly in the technology sector, with the S&P 500 up 21% year-to-date and hitting 41 all-time highs this year alone.
The surge in market value has pushed the U.S. stock market to an astonishing $57.4 trillion — double the nation’s GDP and three times higher than the combined market cap of major Asian and European stock exchanges. The rally since October 2023 has been even more impressive, with the S&P 500 climbing by 43% in just 12 months, on track to post one of the best annual gains in history.
Election Year Effect
Despite the common perception that election years create market instability, historical data tells a different story. Election years have historically been good for U.S. stocks, with the S&P 500 averaging an 11.3% return, higher than the non-election year average. In fact, 83% of election years since 1928 have delivered positive market performance. Whether a Democrat or a Republican wins the presidency, the stock market tends to gain. For instance, when a Democrat is in office and a Republican is elected, the average return has been +12.9%. This reflects a broader investor confidence in the U.S. political system’s long-term stability, regardless of party shifts.
Even September, traditionally a weak month for stocks, has shown resilience. Since election years historically favor a strong market from June through December, with November ranking as the second-strongest month, the outlook for the remainder of 2024 remains bright.
Gold’s Record Surge
At the same time, gold prices have reached unprecedented levels, breaking above $2,700 per ounce and potentially heading for $3,000. Typically, a strong U.S. dollar weakens gold, making it more expensive for foreign investors, but in a rare turn, both gold and the U.S. dollar have risen in tandem, signaling growing safe-haven demand amidst global uncertainty. As recession fears ease following an unexpected drop in the unemployment rate to 4.1%, and despite a reduction in expectations for a Federal Reserve rate cut, gold continues its bullish climb.
This suggests that investors are increasingly turning to gold as a hedge against geopolitical instability and inflation concerns rather than to bonds, a trend not seen since the 2008 financial crisis.
Mortgage Applications: A Real Estate Dilemma
While the stock market thrives, the U.S. housing market paints a starkly different picture. Mortgage applications dropped by 17% last week, the largest decline since April 2020, with refinancing demand plummeting by 26.3%. The 30-year fixed mortgage rate has climbed to 6.52%, its highest point in over two decades, driving a collapse in mortgage demand.
This downward trend in housing comes as mortgage purchase applications posted their worst September since 1994, with demand now down 60% from its January 2021 peak. This may indicate broader concerns about the affordability of homeownership, as well as economic anxieties despite the stock market’s bullish momentum.
National Debt
Adding to the economic uncertainty is the ballooning U.S. national debt, which has surged by $500 billion in just two weeks and $2 trillion since last year. As interest rates remain high and the federal government grapples with budgetary constraints, the question arises: how long can the U.S. economy sustain such heavy borrowing without consequences for both growth and investor sentiment?
Geopolitical Storms
The geopolitical environment remains another major wild card. The war in Ukraine continues with no clear resolution in sight, weighing on European economies and contributing to global instability. Meanwhile, the Israel-Palestine conflict has escalated, heightening tensions in the Middle East and raising concerns about broader regional disruptions.
The U.S. stock market remains largely insulated. Investors seem to be betting on the relative strength and stability of the U.S. economy compared to other global markets, particularly in the face of these geopolitical crises. This may be fueling the continued surge in stock prices even as other sectors, like real estate, falter.
From geopolitical tensions and skyrocketing national debt to cratering mortgage applications — the U.S. stock market has continued its bullish ascent, breaking records and showing resilience in the face of adversity. As we move closer to the 2024 election, historical trends suggest that the markets will continue to perform strongly, though questions about sustainability linger. Investors must weigh whether the bull run can last or if these red flags will eventually catch up. For now, however, U.S. stocks continue to defy gravity.
