Election Year Market Trends

As the United States prepares for another presidential election, investors and retirees may wonder how the outcome could affect their financial future. While political headlines dominate the news cycle, it's crucial to separate facts from speculation when it comes to the impact of elections on the economy and financial markets. This article explores historical market trends during election years, the influence of the presidency and Congress on market performance, the relationship between political parties and the stock market and the resilience of the stock market in the face of geopolitical events.

The Stock Market in an Election Year

How does the stock market perform in an election year? Historical data from the S&P 500 Index provides valuable insights. Since 1928, the stock market has delivered positive returns in 20 out of the last 24 election years, with an average total return of 11.5%. This suggests that, on average, the stock market tends to perform well during election years, regardless of which party wins the presidency.

However, past performance does not guarantee future results. Each election year presents unique challenges and opportunities, and the stock market's response can vary based on factors such as economic conditions, global events and investor sentiment.

The Impact of the Presidency and Congress

While the presidency receives significant attention during an election year, the composition of Congress also plays a crucial role in shaping economic policy and influencing market performance. The legislative branch holds the power to enact laws and regulations that can have far-reaching effects on businesses and the economy.

When the presidency and Congress are aligned, with the same party holding a majority in both the House of Representatives and the Senate, the potential for swift policy implementation increases. This can create a sense of certainty and stability in the market, leading to positive investor sentiment. Conversely, a divided Congress can result in legislative gridlock and uncertainty, which may negatively impact market performance.

Historical data suggests that a gridlocked Congress, regardless of the specific makeup, has produced relatively stable market returns of around 16-17% on average from 1950 to 2022. This indicates that the stock market can still thrive even in the face of political discord, as long as there is a balance of power that prevents extreme policy shifts.

Republicans, Democrats and Market Performance

Investors often wonder if the political party in power has a significant impact on stock market performance. Historical data provides some interesting insights.

When considering the entire four-year term, the average annual return of the S&P 500 has been 10.0%, with Democrats seeing an average annual return of 14.9% and Republicans experiencing an average annual return of 7.9%.

It's important to note that these are historical averages and do not necessarily predict future performance. Many factors beyond the political party in power influence market performance, such as economic conditions, corporate earnings and global events.

Navigating Election Year Uncertainty

For investors and retirees, the key to navigating election year uncertainty is to stick to a well-defined financial plan. Rather than attempting to time the market based on political outcomes, it's crucial to maintain a diversified portfolio that aligns with your risk tolerance and long-term objectives.

Working with an Associated Bank Private Wealth trusted financial advisor at Associated Bank can help you put the impact of elections into perspective and make informed decisions based on your unique circumstances. By focusing on the fundamentals of sound financial planning, such as regular saving, prudent investing and risk management, you can build a solid foundation for your financial future, regardless of the political landscape.

Contact an Associated Bank financial advisor today to secure your investment strategy in any political climate.