What impact do elections have on markets?

by: , Chief Investment Officer and Managing Director | IndexIQ; IndexIQ, ; ,

Do elections move markets? In the short term, the answer is clearly yes. For the longer term it depends more on the policies that are enacted, which in turn flow through to the economy and the business environment and, ultimately, to earnings.

As with almost anything in the stock market, there are patterns to be found. For example, years without federal elections have, on average, seen double-digit stock returns, while federal election years are generally weaker, according to Barron’s.1 For its part, a Charles Schwab study found that the S&P 500 returned 16.4 % on average in year three of the presidential term in the 16 presidential elections since 1950. That compares to 6.5% in the first year, 7% in the second and 6.6% in the fourth (upcoming) year.

When it comes to presidential election years, the market has climbed an average of 17.9% when a Republican was elected, versus a decline of -2.7% when a Democrat was elected, according to a recent Reuters story.2 But if this suggests that Republicans are always better for markets, consider this. In the inaugural presidential year (the first year of the president’s term), the market was up just 2.6% in a Republican administration compared to 22.1% for a Democratic administration, again according to Reuters.

As is often the case with the stock market, the period measured is everything. A day, a month, a year can make a huge difference. That same Reuters story is titled, “There’s No Preferred Political Party for Stocks,” and notes that, “Folks often try to alter the data to prove their party’s superiority—but neither party is inherently better for stocks. Allowing your political beliefs to creep into your portfolio decisions can open you up to investing errors that can be increasingly costly over time.”

Of course we live in a time when 280 characters and a Presidential Tweet can move markets, at least over the short term, so it’s easy to conclude that elections may matter more now than they did in the past. Certainly, the world of social media has made it easier to impact both stocks and bonds. But the practice is too new for its longer-term effect to be accurately assessed. So far, the lessons to be learned are the old ones: diversify your portfolio, create a plan, and don’t be distracted by short-term market moves.

1. Barron’s (Markets Roundtable) – The Stock Market Follows a Pattern in Election Years. Maybe Not This Time; Levisohn. September 28, 2018

2. Reuters – June 22, 2019

Past performance is no guarantee of future results, which will vary. All investments are subject to market risk and will fluctuate in value.

This material represents an assessment of the market environment as at a specific date; is subject to change; and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the funds or any issuer or security in particular.

The strategies discussed are strictly for illustrative and educational purposes and are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. There is no guarantee that any strategies discussed will be effective.

This material contains general information only and does not take into account an individual’s financial circumstances. This information should not be relied upon as a primary basis for an investment decision. Rather, an assessment should be made as to whether the information is appropriate in individual circumstances and consideration should be given to talking to a financial advisor before making an investment decision.

“New York Life Investments” is both a service mark, and the common trade name, of the investment advisors affiliated with New York Life Insurance Company. IndexIQ® is an indirect wholly owned subsidiary of New York Life Investment Management Holdings LLC and serves as the advisor to the IndexIQ ETFs. ALPS Distributors, Inc. (ALPS) is the principal underwriter of the ETFs. NYLIFE Distributors LLC is a distributor of the ETFs. NYLIFE Distributors LLC is located at 30 Hudson Street, Jersey City, NJ 07302. ALPS Distributors, Inc. is not affiliated with NYLIFE Distributors LLC. NYLIFE Distributors LLC is a Member FINRA/SIPC.


Salvatore J. Bruno

Chief Investment Officer and Managing Director | IndexIQ

Sal is Chief Investment Officer at IndexIQ, where his primary responsibility includes developing and maintaining the firm’s investment strategies. Sal joined IndexIQ in 2007 from Deutsche Asset Management (DeAM) where he held a number of senior positions

Full Bio


IndexIQ, a New York Life Investments Company, is a trusted provider of innovative financial solutions. IndexIQ ETFs are built and delivered in a way that provides exposures that investors can rely on. A subsidiary of one of the oldest and largest life insurance companies in the world, we have a solid foundation and the resources to continue our culture of innovation…

Full Bio

Leave a Reply

Your e-mail address will not be published.