U.S. Elections & the Stock Market

Alan Kwan - Mar 15, 2024
U.S. Presidential elections are monumental events with the capacity to influence global financial markets, including the stock market.

A Look at U.S. Elections and Their Effect on the Stock Market

U.S. Presidential elections are monumental events with the capacity to influence global financial markets, including the stock market. The uncertainty and anticipation tied to potential policy alterations, economic strategies, and international relations often result in heightened market volatility.


The Phase Before the Election

Investors typically adopt a cautious stance in the months preceding the election. This period is often characterized by heightened market volatility as investors attempt to forecast the election outcome and its potential economic impact. Sectors that are likely to be influenced by the leading candidates’ proposed policies may experience more pronounced fluctuations.


Reactions After the Election

The markets usually react swiftly once the election results are announced. If the newly elected president is perceived as pro-business, the stock market might experience a surge. On the other hand, policies viewed as detrimental to businesses or specific sectors could trigger a market slump.


Impacts Specific to Sectors

The outcomes of elections can have diverse impacts on different sectors. For instance, a candidate who supports clean energy could cause a surge in renewable energy stocks but might have a negative impact on traditional oil and gas companies. Similarly, modifications in healthcare policies could significantly influence healthcare and pharmaceutical stocks.


The Influence of Republican vs. Democratic Presidents on the Stock Market

Historically, the performance of the stock market has shown minimal difference between Democratic and Republican presidencies. However, there are some intriguing patterns worth noting.

In the immediate aftermath of an election, the market (S&P 500) tends to respond more favorably to a Republican victory. This is likely due to the perception that Republican policies are more conducive to business. However, this initial reaction often diminishes as investors begin to focus more on the new administration’s specific policies.

However, when considering the full term of a presidency, the scenario changes. Data indicates that the S&P 500 has seen growth under every Democratic president since 1933. In contrast, there have been periods under Republican presidents (1968 – 1978 and 2000 – 2009) where the S&P 500 remained relatively stagnant. This suggests that the president’s party may not be as important as the specific policies they implement. Below you will see the chart showing investments in the S&P500 throughout the years of US presidencies.



Dominance of the Economy

The 2024 election will be dominated by current economic issues. Questions such as “Are we headed for a recession?”, “When will inflation return to normal?”, “Will the Federal Reserve cut interest rates?”, and “Did your family’s finances emerge from the pandemic better or worse?” will be at the forefront.

For President Joe Biden, facing off against former President Donald Trump, the most recent economic indicators are good news. The U.S. economy, measured by GDP, grew by 3.1% over 2023, exceeding expectations. Inflation has also dropped from 9.1% in the summer of 2022 to 3.4% in December. U.S. stocks have also set a series of new record highs so far this year.

However, rising prices at the grocery store, high home prices, and the ballooning national debt are likely to be the focus of opposition candidates. As fears of an impending recession appear to have calmed down, there are plenty of economic indicators still pointing in that direction.


The Role of Perception

Even though it may be unfair, U.S. presidents can win or lose elections based on perceptions on economic performance. Herbert Hoover in 1932, was toppled by the Great Depression and Jimmy Carter lost the 1980 election amid the period of record inflation in the late 1970s. Issues talked about in the living room often determine election outcomes. This year probably will be no different.



While the U.S. election can cause market volatility and impact certain sectors, it’s crucial for investors to maintain a long-term perspective and not make impulsive investment decisions based on election outcomes. After all, the stock market has historically trended upwards regardless of which party is in power. Do not let politics dictate how you invest. The adage still holds true it’s time in the market, not timing the market.


Remember, investing should always be aligned with personal financial goals and risk tolerance. Want to know more? Let’s have a talk!