With about 60% of the global population voting in elections across at least 76 countries in 2024, it is natural for investors to look for a connection between who wins a country’s election and which way stocks will go. But the outcome of an election, even in a major economy and superpower like the US, is still only one of many inputs that can impact markets.
At the end of the day, shareholders invest in companies, not political parties. And companies focus on serving their customers and helping their businesses grow, regardless of who is in government. This means that making investment decisions based on possible election outcomes is unlikely to result in reliable excess returns.
To illustrate this point, look at the chart below. It shows the annualised performance of the S&P 500 under a succession of US Presidents, both Republican and Democrat, going back to Herbert Hoover in 1929.
In this example, it is difficult to see any pattern here. Markets have generally delivered positive returns regardless of who was in the White House. And that reinforces the point that using different election scenarios to steer your investment portfolio is unlikely to result in a winning strategy.
Annualised Returns During US Presidential Terms
March 1929 – December 2023
Source: S&P data © 2024 S&P Dow Jones Indices LLC, a division of S&P Global
Each president’s annualised return starts with the first month of presidency and ends with the last full month of returns of presidency. Source: S&P data © 2024 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved.
Understanding what can and cannot control is important when it comes to investing. You cannot control the government or their policies, economic trends, market movement or media noise. You can however control how broadly your investments are diversified, and this can help spread risk and reduce the impact of potential poor performance in any one sector or company.
Source: Dimensional Fund Advisors
Mehak Advani (MAdvFin, CFA Level III Candidate, MCom (Bus. Admin + Acc.), BMgt [Fin]) is an Employee of Alman Partners Pty Ltd, Australian Financial Services Licence No: 222107.
Performance data shown represents past performance or simulated performance. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost.
Note: This material is provided for GENERAL INFORMATION ONLY. It has not been taken into account your personal objectives, situation or needs. The information is objectively ascertainable and is not intended to imply any recommendation or opinion about a financial product. This does not constitute financial product advice under the Corporations Act 2001 (Cth). It is recommended that you obtain financial product advice before making any decision on a financial product such as a decision to purchase or invest in a financial product. Please contact us if you would like to obtain financial product advice.