Markets & Elections

How much do elections really impact the stock market? In this episode, we explore the relationship between politics, elections, and investment performance. While election results can create uncertainty and short-term market volatility, historical data suggests that long-term market performance isn't determined solely by which political party holds office. At its core, corporate earnings and economic fundamentals are major drivers of market performance, although government policies can certainly influence both.

We also take a look at historical market trends surrounding elections, particularly midterm elections. Historically, the stock market has often performed strongly in the year following midterms, although past performance is never a guarantee of future results. We discuss how markets generally prefer certainty over uncertainty, allowing businesses and investors to plan for the future. Another interesting historical trend involves political gridlock, where neither party has complete control of the federal government. Some historical analyses have shown stronger market performance during periods of divided government, although many factors beyond politics influence these outcomes.

Finally, we emphasize one of the most important principles of financial planning: focusing on what you can control. Investors cannot control election outcomes, government policies, or short-term market movements, but they can control important aspects of their financial strategy, including asset allocation, savings rates, and withdrawal rates. Rather than allowing political headlines or emotions to drive investment decisions, maintaining a disciplined, long-term approach can help investors stay focused on their financial goals regardless of who wins an election.