The stock market average return in an election year—and how to help protect your investments

july 5, 2024

It’s presidential election season which means tempers are flaring. Depending on who wins, the stock market’s performance – and your retirement savings invested in the market – could take a turn for the better or worse. How low can the market go if “the other guy” wins? What role should this play in your financial planning considerations? What can you do to protect your savings?

First, something you shouldn’t do: panic. As the police say, “Don’t make any sudden moves.” That’s because there’s less to fear in an election year (at least as far as your savings and investments are concerned) than you may think. And even if your portfolio doesn’t already reflect the steps you should take to mitigate election year volatility and risk, those steps can be easy to implement and there’s still time to take action.

The stock market’s average return in an election year may surprise you

It’s easy to get anxious about politics and the prospects for the stock market’s average return during an election year. But the truth is remarkably reassuring:

  • From 1928 through 2016, the market has generally returned positive results during presidential election years – with positive results in 19 of 23 election years, for an average election-year return of 11.28%.1
  • Looking at presidential elections going back to 1952, another study found the S&P gained an average of 7% during presidential election years.2
  • During a re-election year – such as the one we’re in now – this study found the average S&P gain climbs to 12.2%.3

That study attributes the increase in the stock market’s average return during a re-election year, at least in part, to efforts out of Washington D.C. to keep the economy humming and voters happy. Neither of these studies can predict this year’s stock market average return, of course, but the historical information is worth thinking about.

Whose party produces better stock market return?

The stock market’s average return in an election-year seems to correlate, in part, to which political party wins the election.

  • Happily, the market generally rises regardless of which candidate wins – but the average return has been higher when a Republican wins (15.3%) compared to when a Democrat wins (7.6%).4
  • If that’s because investors anticipate better returns under a Republican president, they might want to hold off on that applause. The market typically performs better during Democratic administrations overall than during Republican ones.5

It’s more than elections that affect stock market return

Keep in mind that an election isn’t the only factor influencing the stock market’s average return– and it may not even be the most important factor. Recessions can have significant impacts on the stock market’s average return in an election year, regardless of who’s in the White House and who wins the election.

The Federal Reserve can also have an important impact on stock market performance in an election year, regardless of who wins the race for the White House. The Fed’s interest rate adjustments – boosting the market when it cuts rates and cooling it by raising rates – can outweigh the impact of politics. Wars, pandemics, civil unrest and other upheavals can also be factors. Context matters.

What you can do

  • Stay disciplined. As we said before, don’t panic in the face of election-year stock market volatility. Emotions can influence investment decisions, especially during election years when the politics gets heated and the market can make dramatic turns. Don’t let your emotions govern your portfolio; that type of investing seldom ends well.
  • Maintain a diversified portfolio, across sectors, geographies, and asset types.* This can be a key way to help reduce your exposure to risk, including election-year risk. Many investors extend their diversification to investments beyond the stock market, such as bonds, real estate, commodities and annuities. Stocks may tend to act one way during a period of uncertainty, bonds and other more conservative assets may act another.
  • Focus on the long term, not the short term. Don’t try to time the market. Many investors and financial professionals consider this good advice in or out of an election year. Market timing can be more akin to gambling than investing and, especially with your retirement savings, you’re in this for the long haul. Sure, the market can turn down as the result of an election or any other event. But keep in mind that the market’s overall trend is upward.
  • Consider tactical adjustments to holdings in sensitive sectors or industries. It may be unwise to make broad portfolio changes – such as cashing out all or a major part of your investments – in response to election-year volatility. But that doesn’t mean you can’t consider making any changes at all. You might think about – and discuss with your financial professional – reducing your exposure to specific industries or other subsets of the market that might be especially impacted by election results. For example, you might consider this if one candidate proposes heavy new regulations or other adverse policy changes on a sector in which you’re highly invested.
  • Work with your financial professional to get your investments in shape for the election, and beyond. If concerns over the impact of the election on your portfolio lead you to check in with your financial professional, that in itself is a good thing. The steps to take in response to election year investment risk (such as diversification and maintaining a long-term horizon) are generally the same steps that can help protect you against any market volatility or unpredictability. Your financial professional is a great place to start to put these defenses to work for you.

Annuities are long-term, tax-deferred vehicles designed for retirement.  Variable annuities involve investment risks and may lose value. Earnings are taxable as ordinary income when distributed. Individuals may be subject to a 10% additional tax for withdrawals before age 59 ½ unless an exception to the tax is met. 

*Diversification does not assure a profit or protect against loss in a declining market

1. S&P 500 Index Returns in US. Presidential Election Years, First Trust Portfolios L.P./Morgan Stanley, undated/accessed May 30, 2024.

2. Presidential Cycle Still Supportive of Stocks, by Jeff Buchbinder, LPL Financial, December 6, 2023.

3. Ibid.

4. S&P 500 Index Returns in US. Presidential Election Years, First Trust Portfolios L.P./Morgan Stanley, undated/accessed May 30, 2024.

5. Here’s the Average Stock Market Return Under Democratic and Republican Presidents, by Trevor Jennewine, The Motley Fool, April 2, 2024.

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