Elections and your investments

10 June 2024

Please note: All data referenced in this article are sourced from Bloomberg unless otherwise stated, and are accurate at the time of publishing.

With election fever gripping the UK, the US presidential race heating up, and now French elections looming, these highly anticipated events undoubtedly inject uncertainty into the political landscape. But do they really disrupt markets?

The turbulent nature of any election campaign can create much anxiety for investors, leaving them with a multitude of dilemmas: which candidate or party will benefit the economy most, should you delay investing until election results are known, and how can you make informed decisions during all this uncertainty? But perhaps most importantly, should investors even be worried at all?

Beware of political biases

Firstly, investors looking at elections shouldn't let their own political views cloud their judgment. The key is to keep personal views separate from investment strategy.

Otherwise, this is where something called ‘confirmation bias’ can creep in – and lead to poor investment decisions. It’s a natural tendency for all of us to favour information that confirms what we already believe. But having these biases might make you gravitate towards news sources and analysis that lines up with your pre-existing thoughts on how the election will affect the market.

Instead, actively seek out diverse perspectives, even if they contradict your initial ideas. By exposing yourself to a wider range of viewpoints, you’ll gain a more balanced understanding of the potential economic and market implications of the election.

Elections and the market: Myth vs. reality

Elections can often be highly charged and partisan. But is one party actually better for financial markets than the other?

This answer is: it’s not clear cut and the data is very much mixed. 

We looked at how US elections have historically impacted the S&P 500 index. What we discovered was that neither major party (the Democrats, who identify as red below, or the Republicans in blue) consistently benefits investors more. 

US elections and subsequent equity market performance

Sources: S&P Global, Barclays Private Bank, May 2024

Note: Red year indicates Republican victory, blue year indicates Democrat victory 

How should investors approach elections?

In reality, investors should care more about global economic health than elections – strong economies benefit everyone (incumbent political parties and investors alike). 

When analysing elections as an investor, focus on economic fundamentals – not the headlines. Elections themselves may not disrupt markets as much as we first thought. Instead, consider if any new government will be able to spend freely or is likely to be limited, as any such uncertainty can affect markets.

Voters also often cite the economy as a top issue, but as we’ve touched on before – their views on data can be biased by political affiliations (and perceptions of the same data can differ wildly between voters). 

For instance, if a left-wing government is in power, right-wing voters often tend to see a poorly performing economy when their opponents are in charge (no matter the evidence) and vice versa. Facts are also more disputed nowadays – especially at election time – and rhetoric can seemingly matter more than economic reality. But it shouldn’t. 

Instead, learn to focus on long-term investing principles: staying invested and building a diversified portfolio. This helps weather uncertainty, including elections, and also the search for returns over time.

Another mistake is trying to time the market based on elections coming up. Holding on to cash is usually costly. The chart and table below demonstrate the power of staying invested in different markets compared to holding cash.

The case for long-term investing

How US investments have performed in a Barclays index, with all earnings reinvested

If you invested $100 in 1925 and reinvesting all the earnings. How much would it be worth today?

  Nominal Real
Equities $984,858 $57,471
Bonds $13,299 $776
Cash $2,293 $134

Sources: CSRP, Barclays Research, Barclays Private Bank, June 2024

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