Elections and your investments

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

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

Related articles

Disclaimer

This communication is general in nature and provided for information/educational purposes only. It does not take into account any specific investment objectives, the financial situation or particular needs of any particular person. It not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful for them to access.

This communication has been prepared by Barclays Private Bank (Barclays) and references to Barclays includes any entity within the Barclays group of companies.

This communication: 

(i) is not research nor a product of the Barclays Research department. Any views expressed in these materials may differ from those of the Barclays Research department. All opinions and estimates are given as of the date of the materials and are subject to change. Barclays is not obliged to inform recipients of these materials of any change to such opinions or estimates;

(ii) is not an offer, an invitation or a recommendation to enter into any product or service and does not constitute a solicitation to buy or sell securities, investment advice or a personal recommendation; 

(iii) is confidential and no part may be reproduced, distributed or transmitted without the prior written permission of Barclays; and

(iv) has not been reviewed or approved by any regulatory authority.

Any past or simulated past performance including back-testing, modelling or scenario analysis, or future projections contained in this communication is no indication as to future performance. No representation is made as to the accuracy of the assumptions made in this communication, or completeness of, any modelling, scenario analysis or back-testing. The value of any investment may also fluctuate as a result of market changes.

Where information in this communication has been obtained from third party sources, we believe those sources to be reliable but we do not guarantee the information’s accuracy and you should note that it may be incomplete or condensed.

Neither Barclays nor any of its directors, officers, employees, representatives or agents, accepts any liability whatsoever for any direct, indirect or consequential losses (in contract, tort or otherwise) arising from the use of this communication or its contents or reliance on the information contained herein, except to the extent this would be prohibited by law or regulation.