Election Years and the Stock Market

Election Years and the Stock Market

December 11, 2023

It's natural to question and analyze how elected officials might shape economic policies. The stock market, ever-sensitive to political shifts, experiences fluctuations that mirror the uncertainties of the political landscape. But just how much does an election year, or who is elected, impact the stock market?

A Glimpse Into History

To truly comprehend the influence of elections on the market, it is helpful to look back at historical trends. While past performance does not guarantee future outcomes, it can provide valuable insights into potential market reactions.

Presidential Elections

Presidential elections, occurring every four years, hold the power to redirect the nation's course on both domestic and foreign fronts. As a result, these elections introduce a level of uncertainty that can significantly impact investor sentiment and overall market performance.

Analysts at U.S. Bank delved into the market's behavior during past elections, uncovering interesting patterns:

  • Equities: In the year preceding a presidential election, equities typically see gains of less than 6%, a notable dip compared to the average of over 8% during non-election years.
  • Bonds: The bond market follows suit, delivering returns of approximately 6.5% leading up to presidential elections, a drop from the 7.5% returns they typically provide.

Interestingly, the aftermath of presidential elections tells a different story. Stock market returns tend to be lower in the first year post-election, while bonds outperform their typical levels.

Image source: Forbes Advisor

The Takeaway

While past performance does not guarantee future outcomes, understanding historical patterns can provide investors with valuable context. Presidential elections indeed wield influence over market dynamics, ushering in a period of cautious anticipation and subsequent resurgence. As the political pendulum swings, so too does the market, creating a dance of uncertainty and opportunity for investors navigating the ever-evolving landscape of finance. Regardless of who is elected, or what party wins, it is important to remember that focusing on long-term performance is more important than temporary fluctuations.

Read more: S&P 500 Index Performance During Election Years

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss.

Source: Forbes Advisor; Brighthouse