When election season ramps up, particularly presidential campaigns, the atmosphere can feel electric—and not in a good way. The apparent divide between red and blue seems to widen, and the rhetoric intensifies. For many of us, this political noise isn’t just background chatter; it can start to feel like our entire world is at stake, including our investments. But are they? Let’s take a look at how elections impact the stock market and why you may not need to worry as much as you think.
The Emotional Roller Coaster of Election Seasons
It’s easy to understand why election seasons can heighten stress. With 24-hour news cycles and constant social media updates, it can feel like every twist and turn is a potential threat to our financial stability. This emotional response is natural. After all, elections often highlight stark differences in policies, and those policies can sometimes impact the economy.
But here’s the good news: Historically, the stock market has shown resilience in the face of presidential elections. While it’s true that uncertainty can lead to short-term volatility, long-term trends tell a different story.
Historical Data: Elections and Market Performance
Keeping in mind that past performance is no guarantee of future results, let’s look at some data. You’ll see that even though we can anticipate some volatility leading up to the election, markets have generally risen in election years. Let’s take the S&P 500 as an example. Since 1952, it has averaged a 7% gain in presidential election years. That’s below the average 10% annual total return, but it’s still on the plus side.
Or take this analysis from TIAA:
“A recent analysis by retirement planning firm TIAA considered how a moderate-risk portfolio with 60% stocks and 40% bonds fared across all presidential election years since 1928. Turns out there were only four years that had negative returns: 1932 (down 1.4%); 1940 (down 4.7%); 2000 (down 0.8%); and 2008 (down 20.1%).”
There were bigger things going on in those years than an election—namely, the Great Depression, World War II, the tech bubble crash, and the start of the Great Recession.
And what happens to the markets once a winner is declared? Historically, the stock market has tended to rise over the long term, regardless of which party is in power. Interestingly, markets often fare best when Congress is split between the two parties. This setup seems to provide checks and balances that prevent any party from having too much influence, which the markets seem to prefer.
It’s also important to distinguish between short-term volatility and long-term growth. Yes, the market can experience ups and downs in the lead-up to an election. Investors might react to poll results, debates, and campaign announcements. This can cause dips or spikes in stock prices. However, these fluctuations are typically short-lived.
At the end of the day, the stock market is driven by economic fundamentals. Factors such as corporate earnings, interest rates, and global economic conditions have played a larger role in determining market performance than who occupies the White House.
What You Can Do: Stay the Course
It’s natural to feel a little anxious during election season when presidential hopefuls claim they can lead the markets to new highs while their opponent will destroy them. Yet it’s important to remember that the stock market has historically weathered these periods of uncertainty.
Over time, the stock market has demonstrated resilience, with long-term growth being the consistent trend despite short-term volatility. While it’s natural to feel uncertain when the political landscape shifts, maintaining a long-term perspective is important.
Investors who focus on the fundamentals and build a diversified portfolio may better weather the ups and downs of the market—both financially and emotionally. Portfolio diversification helps spread risk across different asset classes, making it easier to manage potential losses from short-term market swings. Rebalancing helps keep your portfolio aligned with your needs and goals. By focusing on a well-rounded investment strategy, you can position yourself for growth over time, regardless of political outcomes.
Working with a financial advisor could bolster your confidence during these periods. Fiduciary financial advisors provide guidance and act as a sounding board when emotions run high, helping you stay the course and make informed decisions that align with your long-term goals.
A financial advisor can act as a sounding board, helping you navigate the noise and stay on track with your investment strategy. They can remind you of the bigger picture and provide the perspective you need to avoid making impulsive decisions based on short-term events.
Additionally, an advisor can help you assess any potential risks and opportunities that may arise from election-related developments. But most importantly, they can help you weather the ups and downs of the market, confident that your long-term plan is sound.
Final Thoughts
You can navigate election seasons with a sense of detachment from the daily headlines by staying focused on your long-term financial plan and resisting the urge to react to short-term events.
So, as the political debates heat up and the election cycle hits its stride, take a deep breath. Your investments are likely in better shape than you think.
Schedule a complimentary consultation with one of our fiduciary, fee-only financial planners to discuss your personal situation.
This material was written in collaboration with artificial intelligence (ChatGPT) derived from sources believed to be accurate. This information should not be construed as investment, tax, or legal advice.