As the U.S. presidential election approaches, it’s natural for investors to feel a surge of anxiety about its potential impact on their portfolios. With heightened media attention and the constant drumbeat of predictions, it’s easy to believe that the outcome of the election will dictate market movements. However, history tells a different story.
In reality, while elections bring volatility, they rarely determine long-term market performance. So how should you, as an investor, navigate the political landscape and protect your portfolio from the noise? Here’s what you need to know.
Uncertainty: The market’s greatest challenge
Elections are synonymous with uncertainty, and markets notoriously dislike uncertainty. This year’s race is shaping up to be one of the closest in decades, which could contribute to market volatility in the short term. However, investors should avoid knee-jerk reactions based on political headlines.
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.
Historically, markets have shown remarkable resilience during election years. In fact, data shows that since 1970, the S&P 500 has delivered an average return of 11.6% during election years — outperforming the average annual return of 9% to 11%. This illustrates a critical point: The best course of action in the face of uncertainty is often to stay invested. Trying to time the market during volatile periods rarely pays off. Missing just a few of the best-performing days can significantly reduce long-term gains.
Does the party in power matter?
A common misconception is that the stock market performs better under one political party than the other. However, when we analyze decades of market data, we find no clear correlation between party control and stock market performance. Whether a Democrat or a Republican is in office, the stock market has historically generated positive returns over time.
A cold, calculating market
It’s important to remember that the stock market is not driven by ideology or political promises. At its core, the market is a mechanism for valuing companies based on their future earnings potential. It’s a cold, calculating entity that cares about corporate profits — not policy debates.
When a new president is elected, markets quickly adjust to any anticipated policy changes, factoring in their potential impact on company earnings. Whether the issue is taxes, tariffs or regulations, the market’s primary concern is how those policies affect corporate profitability.
In some cases, policies that seem harmful to certain sectors may already be priced into stock valuations before they are even implemented. Meanwhile, companies have proven time and time again that they can adapt to changing regulations, innovate and find ways to thrive regardless of the political environment.
Focus on the fundamentals
While elections may dominate headlines, they are just one of many factors influencing the market. Global economic trends, interest rate changes, corporate earnings and consumer behavior all play a far more significant role in determining long-term market performance.
Conclusion: Don’t let the election derail your strategy
The U.S. election may add an extra layer of uncertainty to the market, but it’s important not to let it derail your long-term investment strategy. History has shown that markets reward patient investors who stay the course, regardless of political outcomes.
Rather than reacting to political headlines, focus on the fundamentals: a diversified portfolio, a clear financial plan and the discipline to remain invested through volatile periods. By doing so, you’ll be better positioned to achieve your financial goals — no matter who sits in the White House.
Related Content
-
Stock Market Today: Have We Seen the Bottom for Stocks?Solid first-quarter earnings suggest fundamentals remain solid, and recent price action is encouraging too.
-
Is the GOP Secretly Planning to Raise Taxes on the Rich?Tax Reform As high-stakes tax reform talks resume on Capitol Hill, questions are swirling about what Republicans and President Trump will do.
-
Stock Market Today: Have We Seen the Bottom for Stocks?
Solid first-quarter earnings suggest fundamentals remain solid, and recent price action is encouraging too.
-
Social Security Is Taxable, But There Are WorkaroundsIf you're strategic about your retirement account withdrawals, you can potentially minimize the taxes you'll pay on your Social Security benefits.
-
Serious Medical Diagnosis? Four Financial Steps to TakeA serious medical diagnosis calls for updates of your financial, health care and estate plans as well as open conversations with those who'll fulfill your wishes.
-
What Wall Street's CEOs Are Saying About Trump's TariffsWe're in the thick of earnings season and corporate America has plenty to say about the Trump administration's trade policy.
-
Walmart Week 2025: Exclusive Perks and Deals for Walmart+ MembersWalmart+ Week runs April 28 –May 4 with fuel savings, free express delivery and six months of Paramount+ with SHOWTIME. See all the perks.
-
To Stay on Track for Retirement, Consider Doing ThisWriting down your retirement and income plan in an investment policy statement can help you resist letting a bear market upend your retirement.
-
How to Make Changing Interest Rates Work for Your RetirementHigher (or lower) rates can be painful in some ways and helpful in others. The key is being prepared to take advantage of the situation.
-
When to Sell Your StockKnowing when to sell a stock is a major decision investors must make. While there's no one correct answer, we look at some best practices here.
