In the heart of a political showdown, as the nation edges closer to the 2024 presidential face-off between Democratic Vice President Kamala Harris and her Republican challenger, former President Donald Trump, a different kind of battleground is quietly brewing — the financial markets. Investors are aligning their sights not just on the political horizon, but on the ripples the election might send through the economic landscape.
As the election season dominates headlines and newscasts, investors may be tempted to adjust their portfolios to keep pace with the heated clashes and escalated rhetoric. But before taking any meaningful action, it’s important to view things through a historical lens to uncover layers of financial resilience that challenge the notion of election-year market volatility.
Historical stock market trends during presidential election years
The historical stock market trends during U.S. presidential election years reveal a fascinating interplay between politics and market performance, shedding light on strategic investment decisions and long-term financial planning. Since 1952, the S&P 500 has experienced an average gain of 7% during presidential election years, as reported in U.S. News & World Report.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Market predictions tied to election outcomes have shown a remarkable accuracy rate, with the stock market correctly predicting the presidential winner in 87% of cases since 1928, as highlighted by Forbes. A declining market prior to the election has often been an indicator of the incumbent party's defeat.
A report from BlackRock found that despite the political party in power, the stock market has maintained an average return of 11.6% during election years since 1926, slightly outperforming its overall average annual return. Interestingly, a T. Rowe Price report found that the year following a Democratic win sees an average market gain of 11.3%, compared to 6.6% after a Republican victory.
Election year volatility and investor behavior
Election years bring their own brand of market volatility, which tends to be lower on average, except in the immediate months before and after the election. Notably, the T. Rowe Price report found that market turbulence spikes if the incumbent party is expected to lose but usually stabilizes post-election.
The government's composition, whether under single-party control or a divided government, has varied impacts on market performance. While single-party dominance shows no significant correlation with market trends, according to a U.S. Bank report, a divided government has been statistically linked to market performance, providing evidence that the balance of power influences market dynamics more than the controlling party itself.
Long-term investment perspective during election cycles
Beyond the electoral cycle, economic indicators such as growth rates, interest rates, inflation and corporate earnings hold more sway over market returns than election outcomes. Therefore, while the election may cause more buzz and excitement, it is important for investors to focus on broader economic trends rather than short-term election-related noise, aligning with long-term strategic investment goals.
Historical data highlights the minimal long-term effects of elections on market performance, with the S&P 500 showing resilience and positive returns regardless of the electoral cycle. Economic and inflation trends consistently outweigh electoral outcomes, so it is wise to maintain a steady investment approach based on market fundamentals.
Investors should consider maintaining diversified strategies and avoid making hasty decisions based on short-term volatility, with long-term data reinforcing the value of adhering to a well-considered investment plan. This strategic focus on economic growth, interest rates, inflation and corporate earnings is critical to navigating the uncertainties of election cycles while pursuing long-term financial objectives. Despite the speculative fears and heightened discussions around the immediate impacts of election outcomes, the long-term influence on market performance remains marginal.
Securities and investment advisory services offered through Osaic Wealth, Inc. member FINRA/SIPC. Osaic Wealth is separately owned and other entities and/or marketing names, products or services referenced here are independent of Osaic Wealth.
Related Content
-
Is Your Social Security Earnings Record Wrong? Here's How to Fix ItYour Social Security benefits are based on your Social Security earnings record. It's important to review your records to avoid having your benefits reduced.
-
Stock Market Today: Markets Discount Another U.S. DowngradeAfter Friday's closing bell, Moody's followed Standard & Poor's and Fitch and cut its rating on U.S. government debt.
-
Stock Market Today: Markets Discount Another U.S. Downgrade
After Friday's closing bell, Moody's followed Standard & Poor's and Fitch and cut its rating on U.S. government debt.
-
Eight Ways To Save on Your Next Luxury TripLooking for ways to stretch your retirement dollars? Follow these tips to get a deal on your next vacation.
-
Donating Complex Assets Doesn't Have to Be ComplicatedIf you're looking to donate less-conventional assets but don't know where to start, this charity executive has answers, such as considering a donor-advised fund (DAF) for its tax benefits and ease of use.
-
What's Next for Stocks After a Chaotic SpringA chaotic tariff policy buffets investors looking for clarity on the economy and inflation.
-
Think a Repeal of the Estate Tax Wouldn't Affect You? WrongThe wording of any law that repeals or otherwise changes the federal estate tax could have an impact on all of us. Here's what you need to know, courtesy of an estate planning and tax attorney.
-
In Your 50s? We Need to Talk About Long-Term CareMany people don't like thinking about long-term care, but most people will need it. This financial professional recommends planning for these costs as early as possible to avoid stress later.
-
Where to Invest in an Uncertain MarketIn an uncertain market, you can still pocket juicy payouts ranging from 4% to 14%, depending on risk.
-
How to Budget for College Expenses Beyond TuitionSome universities waive tuition for families with incomes below a certain threshold. But you'll still need a plan to cover other costs.
