By the end of 2024, over half of the world’s population will have gone to the polls with particular focus on the US election in November, and it is often asked whether there is necessarily a connection between the outcome of elections and the performance of the stock market.
The upcoming US election
In the case of the US, nearly a century’s worth of data shows that stocks have trended upwards across both Democratic and Republican administrations, and that regardless of who is in power, shareholders invest in companies not political parties.
Further, where the presidency, Senate, and House have historically been secured by a single party, there has been exactly no difference in average annual returns between Republicans and Democrats with just over 14 point a 5% of returns per annum for both parties.
Previous elections
Despite the temptation to tie market outcomes to election results, some of the strongest returns have occurred during both Republican and Democrat residencies, including Roosevelt, Clinton, Eisenhower, and Reagan. The same pattern of similar returns is observed over the two most recent administrations.
Despite the sizable chasm between Joe Biden’s and Donald Trump’s policies, and both experiencing equity bear markets, one caused by the pandemic during the Trump presidency and the other Fed aggressive tightening during the Biden presidency, stock market returns have been nearly identical. US markets have returned 14% per annum after dividends under each president. Highlighting again that markets are neither biassed towards one party nor exclusively driven by election outcomes.
Global markets
If we look at other markets too, for example, the UK that voted only two months ago, we can see that the leading UK stock market indices have also trended upwards regardless of who has been in office. All of this is not to say that whoever is leader of a country does not matter, and that there is not some short-term volatility, particularly around tight races, where political uncertainty is a factor.
Of course it does. However, over the longer term, it’s a combination of factors that impact market returns, such as inflation, interest rates, technology, oil prices, and more, not just country leadership alone.
