Should markets care about who run the US?
Around election season, investors wonder about market impacts. But historical data shows presidential outcomes have minimal influence on long-term stock performance.
The myth of presidential market influence
The S&P 500 has risen an average of 10.68% in years following presidential elections since 1960, closely matching its typical annual returns. This suggests election outcomes have minimal long-term market impact.
Historical data reveals that markets tend to rise regardless of which party controls the White House. During recent administrations, the S&P 500 grew at remarkably similar rates - 13% under Obama, 14% under Trump, and 16% under Biden.
Many investors worry about potential policy shifts affecting their portfolios. However, the market's consistent performance across different administrations indicates that corporate earnings and economic fundamentals matter more than political leadership.
Trading online has become increasingly accessible, allowing investors to maintain their strategies regardless of electoral outcomes.
Short-term volatility versus long-term trends
Election periods often bring temporary market turbulence. Since 1980, the S&P 500 has risen on 9 of 11 election days, though performance is split evenly when including the following day.
Market volatility typically increases in the weeks surrounding elections as investors process potential policy changes. However, this short-term noise rarely affects long-term market trajectories.
Share trading strategies should focus on fundamental factors rather than election cycles. Companies continue to innovate and grow regardless of political leadership.
Understanding market fundamentals helps investors navigate election-related volatility while maintaining focus on long-term goals.
The power of political gridlock
Split-party control of government often benefits markets by preventing dramatic policy changes. This governmental gridlock provides stability that supports steady economic growth.
When power is divided between parties, radical reforms become less likely. This environment allows businesses to operate with greater certainty about future regulations and tax policies.
Investment platforms continue to serve investors regardless of political climate, providing access to diverse market opportunities.
Historically, markets have performed well under divided government scenarios, highlighting how political balance can support steady returns.
Now that markets face a potential Republican ‘clean sweep’, with control of the White House, Senate and House, the outlook remains strong – research from Evercore ISI says that presidential terms with Republican control of all three leads to average annual S&P 500 returns of just over 9%.
Sector performance across administrations
Technology sectors have consistently outperformed across different administrations, driven by innovation and earnings growth rather than political factors.
ETF trading provides exposure to various sectors, allowing investors to benefit from long-term growth trends regardless of political leadership.
Different sectors may face varying regulatory pressures under different administrations, but successful companies adapt and continue growing despite political changes.
Corporate performance ultimately depends more on management execution and market conditions than presidential policies.
Developing an election-proof investment strategy
Focus on long-term investment goals rather than short-term political events. How to invest in stocks should guide your strategy more than election outcomes.
Maintain a diversified portfolio through various market conditions. Trading vs investing decisions should reflect your personal goals rather than political cycles.
Consider using demo accounts to practice maintaining steady strategies during volatile periods.
Regular portfolio reviews and adjustments based on fundamental factors rather than political events help maintain long-term success.
How to maintain your investment strategy during elections:
1. Research market fundamentals and company performance
2. Choose whether you want to trade or invest
4. Build a diversified portfolio aligned with your goals
5. Monitor investments based on fundamentals rather than politics
This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
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