How U.S. Presidential Elections Impact Markets: Key Data Insights for Investors
Are you wondering how the presidential election could affect your investments? Every four years, uncertainty about the next president and their policies leads to more uncertainty in the minds of investors. 2024 is no exception, given the extraordinary move by a sitting president to withdraw from the race.
Let's explore how election years have historically effected the markets.
This is purely data driven and does not serve as investment advice.
Hope you find this collection of information helpful and informative as we approach the highly anticipated U.S election next week.
How have markets performed under various presidents?
Dating back to John F. Kennedy’s inauguration in 1961, the S&P 500 posted a negative return during only 2 presidencies: Richard Nixon and George W. Bush.
💡 The S&P 500 has consistently grown in value over the long term, no matter who’s in office.
How have markets performed under various presidents?
How would your investments perform if you only invested during presidencies of one party?
Making major investment decisions based on a president’s political party-i.e. Being invested only during democratic presidencies, then moving to cash for Republican tenures, or vice versa–is probably hurting your portfolio more than helping it.
Regardless of the party occupying the Oval Office, staying invested is the most prudent long-term strategy.
How volatile are markets leading up to and after an election?
Investor anxiety has generally risen leading up to Election Day in the last eight cycles, as illustrated by the CBOE volatility index.
However, volatility often cools down once the election is over and in the roughly two-month period leading up to Inauguration Day.
What is the impact of moving to cash during presidential election years?
Just as making investment decisions based on a preferred political party can negatively impact portfolios, pulling investments out of the market and moving to cash during election years can be equally detrimental.
Despite short-term volatility in election years, remaining invested for the long-term is the most prudent strategy.
How does the market react after elections?
Of the 18 presidential elections years since 1952, 9 of them saw the market turn positive on the first trading day following Election Day.
The average of -0.23% was heavily influenced by the 2008 and 2012 elections, where the S&P 500 logged one day returns of -5.27% and -2.37%, respectively.
Markets turned higher in the last two elections, greeting the prospects of a Biden presidency in 2020 with more enthusiasm than Trump’s electoral victory in 2016. However, the post-election period generally produced higher returns, as the S&P 500 was positive during the roughly 2-month period leading up to inauguration day for 11 of the last 18 elections.
How does the market react when an incumbent president is re-elected?
In most cases, the S&P 500 posted positive returns between election day and inauguration day, regardless of who wins the presidency.
Since 1952, Democratic presidents winning reelection has historically led to the most significant S&P 500 returns in this post-election period. However, lower returns have tended to occur when the winning candidate was neither an incumbent nor a challenger, such as in election cycles that replace a termed-out president.
As of July 21st, 2024, the 2024 election falls into the “Neither” category; historically these have produced the lower pre-inauguration returns, especially if a Democratic candidate is elected.
How does one-party control or a divided Congress impact market returns?
Historically, higher average annualized returns have occurred during a divided Congress, where one party controls the House or Senate and the other party holds a majority in the second chamber. Lower returns have come during Democratic majorities in both the House and Senate, while higher returns have taken place under Republican control of both congressional chambers. In any case, the market has historically been positive under all six government compositions.
Under the current government of Democratic president and divided Congress, the S&P 500 has advanced 50.08% (26.06% annualized) between January 3rd, 2023–when this current Congress was sworn in–and September 30th, 2024, outperforming the 15.72% annualized return historically generated during this legislative formation.
How did asset classes perform under the last two presidents?
Equities have performed considerably well under both presidents, with the exception of Emerging Markets (EM). EM rose 72.1% during Trump’s presidency, but has fallen 14.1% through Q2 2024 of Biden’s tenure. Bond indices also advanced under Trump but have slipped during Biden’s presidency thus far. Commodities were the worst performing and only negative asset class under Trump, but have performed the best under Biden.
The Bottom Line
The parties occupying the White House and Legislature are just one of many variables that can affect investments. For example, the 2008 Financial Crisis created systematic risk for Presidents Bush and Obama, while the global pandemic in 2020 impacted the market beyond the control of Presidents Trump and Biden.
The most important takeaway for financial advisors and their clients: while elections may create some short-term uncertainty, focusing on long-term investing goals should always be the most important factor in investment decision-making.