How elections can affect your stock investments
Updated: Jun 7, 2020
Every four years, the U.S. presidential election can have a major impact on policy, laws and foreign relations. But how do presidential elections affect the market? And how does that affect you?
The stock market and elections
A review of market data for the S&P 500 going back to the 1930s revealed certain patterns emerging over those 90 years. On average, both stock and bond markets showed more muted performance in the year leading up to a presidential election than they did at other times.
In any given 12-month period, equities generally providing gains of about 8.5 percent – but in the year leading up to a presidential election, gains totaled less than 6 percent. Bond markets provided similar results, with returns of around 6.5 percent in the year leading up to a presidential election, compared with their more typical 7.5 percent in any given 12-month period.
Stock market performance after elections
There are a few different variables that can affect the stock market performance:
After an election, stock market returns tend to be slightly lower for the following year, while bonds tend to outperform slightly after the election. It doesn’t seem to make much difference which party takes office, but it does matter whether control of the White House changes hands.
When a new party comes into power, stock market gains averaged 5 percent.
When the same president is re-elected or if one party retains control of the White House, returns were slightly higher, at 6.5 percent.