Every four years, as the US presidential election heats up, a familiar question arises: Does the election actually impact the stock market? The answer, as with most things in finance, isn’t a simple yes or no. But fear not, intrepid investor, for we’re about to embark on a detailed exploration of the data and expert insights to shed light on this complex relationship.
The Historical Lens: Factoring in Past Performance
Let’s start with the numbers. Looking at historical data from 1928 onwards, the S&P 500 has actually posted positive returns in 83% of election years, with an average gain of 7%. [1] That might seem reassuring, but there are nuances to consider.
- Pre-Election Jitters: The year leading up to the election often sees lower returns, possibly due to investor uncertainty. [2]
- However, in 2023 the S&P500 boasted a 24% return! [7]
- Post-Election Performance: The 12 months after the election tend to show stronger returns, regardless of the winning party. [3]
- Midterm Elections: These elections, held two years into a presidency, often see a quicker market rebound compared to presidential elections. [4]
So, while history suggests election years aren’t inherently bad for the market, there are periods of volatility and nuances to consider.
Beyond the Numbers: Expert Opinions Weigh In
While historical data offers valuable insights, it’s crucial to consider expert opinions. Here are some key takeaways:
- Uncertainty Matters More Than Party Affiliation: Experts often argue that uncertainty surrounding policy changes, rather than the specific party in power, has a bigger impact on the market. [5]
- Focus on Fundamentals: Financial advisors emphasize the importance of staying focused on long-term economic fundamentals and individual company performance rather than getting caught up in election noise. [6]
- Do not Panic Sell: Experts caution against making reactionary investment decisions based on election outcomes. [7]
The Bottom Line: Navigate with Knowledge, Not Fear
The relationship between elections and the stock market is complex. While short-term volatility may occur, historical data and expert opinions suggest focusing on long-term fundamentals and avoiding emotional investing. Remember, knowledge is power, and by staying informed and level-headed, you can navigate election season with confidence.
Disclaimer: All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. This is a hypothetical scenario for educational purposes only and should not be considered financial advice. Please consult a qualified financial advisor before making any investment decisions. This blog post is for informational purposes only and should not be construed as financial advice. Please consult with a qualified financial advisor before making any investment decisions.
Sources:
- Investopedia: Investors’ Election Year Worries Could Be Overblown, Experts Say: https://www.investopedia.com/investors-election-year-worries-could-be-overblown-experts-say-841052
- Forbes Advisor: How Do Elections Affect The Stock Market?: https://www.forbes.com/advisor/investing/how-do-elections-affect-the-stock-market/: https://www.forbes.com/advisor/investing/how-do-elections-affect-the-stock-market/
- U.S. Bank: How Presidential Elections Affect the Stock Market: https://www.usbank.com/investing/financial-perspectives/market-news/how-presidential-elections-affect-the-stock-market.html: https://www.usbank.com/investing/financial-perspectives/market-news/how-presidential-elections-affect-the-stock-market.html
- U.S. News & World Report: Election 2024: How Stocks Perform in Election Years: https://money.usnews.com/investing/articles/election-2024-how-stocks-perform-in-election-years: https://money.usnews.com/investing/articles/election-2024-how-stocks-perform-in-election-years
- Investopedia: Do U.S. Election Results Influence the Stock Market?: https://www.investopedia.com/us-election-and-stock-market-6822056: https://www.investopedia.com/us-election-and-stock-market-6822056
- Fidelity Investments: Election Investing: Key Considerations for the 2024 Election: [<invalid URL removed>](<invalid URL removed>
- Visualizing 150 Years of S&P 500 Returns: https://www.visualcapitalist.com/150-years-of-sp-500-historical-returns/#:~:text=2023%20was%20supposed%20to%20be,rallied%20over%2024%25%20in%202023.
