Understanding Market Reactions to the U.S. Election: Why Long-Term Investors Should Remain Confident

As the 2024 U.S. presidential election approaches, many Canadians may be wondering how the outcome could affect their investment portfolios. It’s natural to assume that U.S. elections drive heightened market volatility, as investor sentiment ebbs and flows with political developments. However, historical data and expert insights suggest that, in the long run, a U.S. presidential election’s impact on well-diversified portfolios is likely to be minimal—no matter who wins. 

Elections and Market Behavior: A Broader View 

Election cycles frequently lead to individuals and investors speculating on how policies from a Republican or Democratic administration might influence sectors like healthcare, energy, and technology. But if we zoom out, data shows that the stock market is more heavily influenced by broader economic factors, such as corporate earnings, interest rates, and global events, rather than the result of any single election. 

Take, for example, the Dow Jones Industrial Average (DJIA), which has risen during both Democratic and Republican administrations. After Joe Biden’s 2020 victory, the DJIA climbed 17% in the following months. Similarly, after Donald Trump’s 2016 win, the DJIA increased by over 12%. Such performance underscores the fact that, while markets may fluctuate immediately after elections, their longer-term direction aligns more closely with underlying economic fundamentals than with political shifts. 

Moreover, whether the U.S. government is unified under one party or divided between a Democratic White House and Republican Congress, historical data shows that market performance remains largely consistent. For instance, after the 2022 midterms, when Congress was split, markets continued to climb steadily, a clear sign that broader forces—not political control—drive long-term market trends. 

Sector-Specific Impact: A Nuanced Influence 

While election outcomes may impact specific sectors, the relationship between politics and stock performance is rarely straightforward. Energy policies or tax reforms, for example, may create headwinds or opportunities for industries like fossil fuels or renewable energy. Yet, counterintuitively, under Trump’s presidency, renewable energy stocks outperformed expectations, while traditional energy companies saw gains during Biden’s term. 

This highlights a critical point for WealthCo clients with cross-border interests: market performance cannot be easily predicted based on political rhetoric. A diversified portfolio is better equipped to absorb sector-specific volatility, no matter who occupies the White House. 

WealthCo’s Approach: Staying Focused on the Long Term 

At WealthCo, we stress the importance of focusing on long-term strategies. While political headlines may grab attention, the reality is that well-diversified portfolios are designed to withstand short-term fluctuations, including those driven by elections. The key is to avoid reacting to the noise of the election cycle and instead stay committed to the fundamentals—diversification across alternative asset classes as well as equity capitalization —that have a far greater influence on your portfolio’s long-term success. 

Keep Your Eye on the Fundamentals 

While the U.S. presidential election may stir some market volatility, historical evidence suggests that the long-term impact on investment portfolio will be limited. The real drivers of market performance—such as economic growth, interest rates, and corporate profits—remain far more significant than who wins the election.