How do elections impact the market?

With elections coming up in November, the outcomes will impact a range of issues and topics like taxes, fiscal policy, and the markets. While Presidents and Congress have some impact on markets, they are just a small part of complex, interconnected systems. The markets will be influenced, but perhaps not in the ways you might expect.  

Why? Many factors that play significant roles in the markets are not controlled by who is in office. The stock market is comprised of companies whose focus is on serving their customers, growing their businesses, and increasing shareholder value, regardless of who is in the White House.

The bond market is primarily driven by interest rates, which are impacted by inflation expectations. The Federal Reserve sets short-term interest rate policy and influences the market for longer-term rates. The Fed functions somewhat independently and is tasked with making decisions in alignment of two congressionally-derived mandates: price stability and full employment. As we saw in 2022, sometimes pursuing those objectives can lead to challenging stock and bond markets. 

When we look back in time, the U.S. stock market has rewarded disciplined investors through both Democratic and Republican presidencies. As shown in the graph below, the U.S. stock market has trended upward under most presidents and irrespective of political party for the past century.

Not only has the U.S. stock market gone up during most presidential terms, but on average it has returned +9.5% per year under both Republican and Democratic presidents since 1929.

What about in election years? The period leading up to an election can be marked by increased market volatility as investors react to polls, debates, and other election-related news. But, while it is more difficult to identify systematic return patterns in election years, on average, market returns have been positive both in election years and the subsequent year. Returns during and after U.S. elections years have actually been higher than the average 9.5% rate of return in the U.S. stock market. On average, in election years the U.S. stock market has been up 11.57% on average, and the year following elections, up 10.67%.

In spite of the uncertainty and unpredictability we may feel during election years, it can be helpful to remember that markets continue to reward investors who stay the course – those who stay invested and disciplined. Our job is to help ensure your investment portfolio aligns with your circumstances, investment horizon, and tolerance for volatility, so that you’re able to benefit from the historically significant average annual growth. And as always, we are here to answer any questions and provide guidance as you plan for life’s possibilities.