4 Reasons You Shouldn’t Worry About the Election Impacting the Stock Market
Written by
John Csiszar
Edited by
Jenna Klaverweiden
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As the November 2024 election is rapidly approaching, there is more and more discussion in the mainstream press about how either a Trump or a Harris victory will affect the stock market and investments. After all, the two candidates could hardly be further apart in terms of their political beliefs and agendas, so it makes logical sense that investors might want to hedge their bets one way or the other.
But as is often the case in life, the reality of the stock market and election cycles isn’t quite as black and white as some investors might believe. In fact, there’s an argument to be made that you shouldn’t worry about the upcoming election in terms of your stock market investments.
Stocks Are Long-Term Investments
Most financial experts will recommend that you shouldn’t invest in the stock market unless you plan to keep your money there for the long run — at least five or 10 years. As presidents in the U.S. serve only four-year terms, your stock investments should last beyond the term of any president, especially if they serve for only one term.
With this mindset, it doesn’t really matter who wins the White House. Even if your favored candidate loses and the winner imposes policies that temporarily damage the market, over time, those winds are sure to shift back in the other direction. If you see the stock market as a long-term, wealth-building mechanism that consistently makes new highs over time, any short-term pullbacks can actually be opportunities to invest even more at lower prices.
Evidence Shows Short-Term Election Results Don’t Significantly Impact Long-Term Gains
It might be shocking to hear, but facts are facts: The stock market tends to go higher regardless of which political party or president is in office. Over the past 20 four-year administrations, going back to Eisenhower, the stock market has risen 17 times, according to Ryan Detrick, chief market strategist at the Carson Group.
What Detrick said investors should really root for is not necessarily a certain candidate to win but for the composition of Congress to be split. “What’s going to matter more [than the presidential election] is the makeup of Congress,” he said in a recent CNBC article. “When you have a divided Congress, that tends to be the best thing.”
And the data backs Detrick’s assertion. From 1951 through 2023, when Democrats had full control of Congress, the S&P 500 averaged a 6.7% annual return. When the Republicans had control in that time period, that jumped to 11%. But when Congress was split, the S&P 500 posted an impressive 14.5% average annual return.
You Can’t Bet On the Unknowable
Commentators, analysts and investors all like to make bets on what will happen when one political party or specific candidate takes office. However, the truth is that the effects of an election are unknowable.
Candidates are often boisterous about certain policies they want to enact if they win an election, but whether or not any legislation can actually pass Congress — and whether a candidate’s campaign “promises” are simply talking points to generate votes — is something that needs to play out over time.
While politics can certainly move markets, over the long run, earnings drive stock prices. Investing for the long term based on revenue and earnings growth rather than trying to trade the day-to-day emotions of the market is a more reliable wealth-building strategy.
America Is Resilient
America has had both good and bad presidents, but it has proven itself surprisingly resilient over time. Depressions, recessions, skyrocketing inflation, geopolitical turmoil and other factors may temporarily batter stocks, but over time, the earnings growth of American companies has always pulled the market to new highs.
One of the most popular and successful investors of all time, Warren Buffett, said it best in his 2020 letter to Berkshire Hathaway shareholders: “Despite some severe interruptions, our country’s economic progress has been breathtaking. Our unwavering conclusion: Never bet against America.”
Editor’s note on election coverage: GOBankingRates is nonpartisan and strives to cover all aspects of the economy objectively and present balanced reports on politically focused finance stories. You can find more coverage of this topic on GOBankingRates.com.
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