What to Expect with the Stock Market After an Election
Every presidential election cycle brings its share of uncertainty and speculation. For many investors, it can be unsettling to hear candidates predict dire outcomes if their opponent wins. Add to that the natural unpredictability of markets, and it’s no surprise that election years can make even seasoned investors nervous. However, the reality is that the stock market has historically proven resilient, regardless of which party takes office.
If you’re feeling anxious about how the stock market might respond post-election, you’re not alone. The good news is that history provides valuable insights into what you can expect after the ballots are counted.
Stock Market Resilience Across Elections
While keeping in mind that past performance is no guarantee of future success, the overall impact of an election on long-term market performance has generally been less dramatic than you might think.
In fact, the S&P 500 has averaged a 7% gain during U.S. presidential election years since 1952, even though short-term swings can be common. This gain is lower than the average annual return of about 10% but still in positive territory, showing that the market has tended to move upward despite the political noise.
Source: Dimensional Fund Advisors, “How Much Impact Does the President Have on Stocks?” 26 August 2024, https://www.dimensional.com/us-en/insights/how-much-impact-does-the-president-have-on-stocks.
Looking at past elections, only four have resulted in a net loss for the market between 1928 and 2022. These down years were largely tied to external events such as the Great Depression, World War II, and the 2008 financial crisis—major crises that overshadowed the elections themselves. This suggests that while elections may cause short-term turbulence, they are not the main driver of long-term market performance.
Source: Dana Anspach, “Stock Market Performance in Presidential Election Years,” The Balance, updated 13 March 2022, https://www.thebalancemoney.com/presidential-elections-and-stock-market-returns-2388526.
Long-Term Trends Matter More Than Election Outcomes
It’s tempting to believe that the outcome of a presidential election will drastically change the stock market’s trajectory. However, history tells a different story. Whether a Democrat or a Republican sits in the Oval Office, the market has shown a remarkable ability to adapt and thrive.
For example, during both the Clinton (D) and Reagan (R) administrations—despite vastly different political ideologies—stocks posted some of their strongest returns.
On average, markets have performed well under both parties, with an annualized return of around 9.6% with a Democrat win and 5.7% with a Republican victory. Ten years later, the difference has tended to even out.
This serves as an important reminder: It’s not the political party that drives long-term stock market success. Factors like economic growth, inflation, and corporate earnings play a much larger role in market outcomes.
Short-Term Volatility Is Normal
Although long-term trends are reassuring, it’s also true that markets tend to experience heightened volatility around election time. Anxiety about the future can lead to short-term swings in stock prices as investors react to the news cycle.
However, this volatility usually subsides shortly after the election. Historically, markets have calmed down within 60 days of the vote as the uncertainty surrounding the election outcome dissipates.
What You Can Do as an Investor
With this in mind, what can you do to manage your investments during and after an election?
Maintain a diversified portfolio: One of the most effective ways to reduce risk is to diversify your investments across different asset classes. This can help smooth out any short-term market volatility that comes with election years.
Stick to your long-term strategy: The stock market is naturally up and down, and trying to time the market based on election outcomes is risky. It can be far better to focus on your long-term goals and stick to a well-thought-out financial plan.
Focus on what you can control: You can’t control election results or short-term market movements, but you can control your saving and investing habits. Staying disciplined through the ups and downs can pay off over time.
Talk to a financial advisor: If the election and the accompanying market swings are making you uneasy, a fiduciary financial advisor can help you stay on track. They can provide objective advice and help align your investment strategy with your long-term goals.
Final Thoughts
While it’s natural to feel uncertain about the stock market’s future during an election year, history shows that markets are resilient. Short-term volatility is common, but the market has continued upward over the long run.
The best action may be to focus on your long-term financial goals and avoid making impulsive decisions based on the news cycle. By maintaining a diversified portfolio and sticking to your investment plan, you’ll be in a stronger position to weather short-term volatility and come out ahead in the long run. And if you’re feeling uncertain, a fiduciary financial advisor can help provide clarity and peace of mind.
Schedule a complimentary, 15-minute chat with a fee-only, fiduciary financial advisor today 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.
Parkshore Wealth Management is a family-owned, independent, fee-only Registered Investment Advisor with offices in Granite Bay and Folsom, CA, and Lehi and Logan, UT. We partner with financially responsible individuals and families who are eager to take positive steps that will allow them to use their money to build the life they desire. The firm is led by Harold Anderson, CFP®, and Daniel Andersen, CFP®, both members of NAPFA, the country’s leading professional association of fee-only financial advisors.