On 5 November, Americans will head to the polls to vote for the next president of the United States.

The polls show that the race between Democrat Kamala Harris and the former Republican president, Donald Trump, is closely run, although as of 24 September according to the polls, Harris has a slight lead.

If you’re anxiously awaiting the outcome – and its potential implications for your investments – read on to learn more about the historical relationship between US presidential elections and the performance of the markets.

Then, find out how adopting a long-term approach to investing could help you tune out election noise and ride out any periods of volatility.

A historic look back at the relationship between US elections and market performance

The US presidential election is one of the world’s major news events. So, it’s no surprise that many investors may feel apprehensive about its potential influence on the performance of the US and global markets.

While past performance is no guarantee of future results, a look back at previous US elections provides valuable insight into the relationship between the race for president and market performance.

Donald Trump v Hillary Clinton, 2016

In a closely contested race, Trump won the US election in 2016, securing 304 electoral votes to Clinton’s 227.

In the build up to the election, with the result too close to call, there was uncertainty in the markets.

Immediately before election day, the US stock market declined as concerns rose about a potential Trump presidency, which to many, felt less predictable than having Clinton in the White House. International markets also dipped as a Trump victory began to look more likely.

However, the US markets rebounded the day after the election due to investor optimism about Trump’s economic policies, such as cutting corporate tax, deregulation, and major plans to invest in infrastructure.

This sharp rise in the markets was quickly branded the “Trump rally”. Indeed, CNN Business revealed that the Dow Jones Industrial Average increased 257 points, nearing lifetime highs, on 9 November 2016. So, the predicted stock market slump following Trump’s win never materialised.

Barack Obama v Joe Biden, 2008

This election took place during the global economic crisis, triggered by the collapse of the major financial services firm, Lehman Brothers.

The markets experienced significant declines before and immediately after election day on 4 November 2008. According to ABC News, the Dow Jones dropped 500 points on 5 November.

However, while market volatility continued until the end of the year, this was largely driven by the broader financial crises, rather than the election result.

What’s more, figures published by NBC News show that, after reaching a record low on 9 March 2009, the markets rose 59.3% by the end of 2009.

Bill Clinton v Bob Dole, 1996

In contrast to the 2008 election, the presidential election between Clinton and Dole took place in an economy that was performing well, with low inflation and strong growth.

In the run up to the election, the markets were relatively stable. Investors felt confident in Clinton’s policies, and the prospect of the president remaining in office for a second term offered reassuring consistency.

After Clinton won the election, the markets continued to perform well. However, this was likely due to the positive economic context and ongoing tech boom, rather than the election outcome.

Ronald Reagan v Jimmy Carter, 1980

In 1980, the US economy was experiencing a period of stagflation – a combination of stagnant economic growth and high inflation. According to data from Federal Reserve History, inflation was almost 14.5% and unemployment was over 7.5% by the summer of 1980.

Before the election on 4 November 1980, markets were extremely volatile. When Reagan won a landslide victory, the markets remained slow as investors grappled with uncertainty about how the new president’s policies might work in practice.

However, despite initial post-election caution, the markets bounced back in 1982.

A strengthening economy could lead to positive growth following the 2024 US election

As you can see, any volatility in the markets around a US election is typically short-lived. Additionally, market declines are usually attributable to outside macro factors, such as the 2008 financial crisis, rather than a specific election outcome.

Fortunately, there are signs of economic recovery in the US, following a period of turbulence and high inflation in the years after the coronavirus pandemic. According to AP News, consumer inflation fell to a three-year low of 2.5% in August, and the US central bank lowered interest rates (by 0.5%) for the first time in more than four years on 18 September.

This means that there could be a period of positive growth after the election, whoever emerges victorious.

How long-term investing could help you ride out any periods of market volatility

Tuning out the election “noise”, ignoring short-term fluctuations in the market, and sticking to your financial plan could help you ride out any market volatility that may occur before, during, and after the US presidential race.

It is important to note one key fact when analysing the impact of US elections: The main indices, such as the S&P 500, usually rise regardless of who is in office. Since 1961, other than during the presidencies of Richard Nixon and George W. Bush, the S&P has seen positive returns, as shown in the image below.

Source: Forex.com

Past performance is no guarantee of future results. Data includes the price-only return of the S&P 500, excluding dividends. *Biden Presidency returns through the end of Q1 2024.

While you may be tempted to change your investment strategy to reflect how you predict the markets might respond to the election, this could hamper your progress towards your long-term goals.

Remember that everyone around the world will wake up the day after the election and go to work, contributing to continued profitability and innovation at large companies that make up the stock market.

A recent review of market performance by Schroders offers reassuring figures on long-term investing.

So, rather than trying to predict the election outcome and how it could affect your investments, you may benefit from adopting a long-term plan that aligns with your goals – and sticking to it.

Get in touch

If you’d like to learn more about developing a long-term investment strategy and balancing risk in your portfolio, we can help.

Please email info@bmpwealth.com or call +852 3975 2878.