Elections can be a time of heightened emotion and uncertainty, but when it comes to investing, it’s crucial to remember that the performance of the economy and financial markets is influenced by a multitude of factors, not just the political party in power. In truth, our elections have less impact on the economy and markets than many believe.  

Historical Context 

Historical data shows that the U.S. economy and stock market performance are not significantly influenced by which party occupies Washington. S&P 500 returns reveal that there is no consistent pattern of performance based on the party in power, in fact, markets perform best when the White House and Congress are divided (aka when our elected leaders are forced to collaborate and compromise!) 

Source: U.S. Bank Asset Management Group 

This pattern suggests that other factors, such as global economic conditions, technological advancements, and corporate earnings, play a more substantial role in shaping market performance. 

While presidential administrations set broad policies, the day-to-day economic impact is often more influenced by Congressional actions. Legislation such as tax reforms, spending bills, and regulatory changes can have a more immediate impact on the economy.  

Long-Term Investing and Political Cycles 

Investors who focus on long-term goals rather than short-term political events generally fare better. Historical evidence suggests that market timing based on political cycles is less effective than a steady, disciplined approach. For illustrative purposes, if someone invested $100,000 in the S&P 500 in 1950, but only remained invested under a Democratic president, they would have amassed roughly $3.1 million (excluding dividends). Alternatively, if they only remained invested under a Republican president, they would have $1.0 million. However, if the investor simply held the investment, regardless of who was in office, they would have over $32 million (as of 2022).  

S&P 500 Performance of Political Party Portfolios 

Source: LPL Research, Bloomberg 06/24/24 

This graph reiterates that a diversified portfolio, regular contributions, and a long-term perspective usually provide better outcomes than trying to adjust investments in response to election results. 

Conclusion 

While U.S. elections undoubtedly have a profound impact on the political landscape, their influence on the economy and financial markets is often less dramatic than one might expect. By focusing on fundamental economic indicators and maintaining a long-term investment strategy, investors can better navigate the ebbs and flows of the political cycle. Remember, successful investing is about looking beyond short-term fluctuations and focusing on enduring financial principles. 

If you’re concerned about how political changes might impact your financial strategy, or if you need guidance on maintaining a resilient investment portfolio, don’t hesitate to reach out to our team. We’re here to help you navigate the complexities of investing and ensure your financial goals remain on track, no matter the political climate.