The US will head to the polls on 5 November to elect the next president.
The vote will be closely watched around the world and is already generating lots of headlines. But while elections can evoke strong emotions, they shouldn’t dictate your investment decisions.
Our research shows that the impact of US presidential elections on stock markets has historically been minimal.
It’s one of the many reasons to stay focused on your goals and not let any short-term market jitters sway you from your financial plan.
Markets tend to ignore presidential election years
We analysed the performance of US and global stock markets between August 1971 and September 2024. During that time, there have been 14 presidential election years, including this year.
The chart below shows that election years (represented by the light grey columns) had a minimal impact on stock market performance.
The events that impacted stock markets the most were of a much bigger scale. These included the bursting of the dot-com bubble (when technology stocks fell after a rapid rise in valuations in the late 1990s) and the global financial crisis in 2007-09. Stock markets eventually recovered from these major, global events and went on to reach new highs.
Stock market performance from 1971 to 2024
Past performance is not a reliable indicator of future results. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.
Notes: The chart shows the price of global shares (measured by the MSCI World Price Index until 31 December 1987 and the MSCI AC World Price Index thereafter) and US shares (measured by the S&P 500 Price Index) in GBP from 20 August 1971 to 27 September 2024. Returns do not include the impact of fees. The shaded vertical lines show the US election years. Both indices were rebased so that 20 August 1971 equals 100.
Source: Vanguard calculations in GBP, based on data from Refinitiv, as at 4 October 2024.
Markets are no more turbulent in the months closest to the election
You might think that in the months closest to a presidential election, stock markets will be more turbulent than at other times. In reality, the opposite has been true.
The chart below shows a measure of fluctuations in US stock market returns in the 100 business days leading up to and following each presidential election since 1972. This measure of fluctuations is known as ‘volatility’ and is calculated on an annualised1 basis. The dark grey line shows average annualised volatility since 1972. For the vast majority of elections (the light grey lines) volatility is lower than the historical average. The major exceptions are the 2000 and 2008 elections, which coincided with the collapse of the dot-com bubble (light green line) and the global financial crisis (dark green line).
Market volatility in the months closest to the vote
Past performance is not a reliable indicator of future results. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.
Notes: The chart shows the annualised volatility of daily S&P 500 returns in GBP, measured over the previous month (21 business days) starting 100 business days before and ending 100 business days after each US presidential election since November 1972. Volatility is a measure of how much the daily returns varied over time. The grey line shows the annualised volatility between 20 August 1971 and 27 September 2024. Returns do not include the impact of fees.
Source: Vanguard calculations in GBP, based on data from Refinitiv, as at 4 October 2024.
Timing the market can do more harm than good
The charts illustrate an important point – when it comes to investing, it’s important to keep perspective, stay disciplined and focus on your long-term goals.
Often, timing the market can do more harm than good. Our research shows that, historically, the best and worst trading days have tended to occur close together. In the chart below, the gold bars, which represent the 20 worst trading days, look like mirror images of the green bars, which signify the best trading days. This makes the prospect of successfully timing the market almost impossible.
By trying to time the market, you run the risk of missing out on strong performance, which can seriously hamper long-term investment success.
The best and worst trading days happen close together
Past performance is not a reliable indicator of future results.
Notes: The chart shows daily returns of the MSCI World Price Index from 1 January 1980 to 31 December 1987 and the MSCI AC World Price Index thereafter. The green bars highlight the 20 best trading days since 1 January 1980 and the gold bars highlight the 20 worst trading days since 1 January 1980.
Source: Vanguard calculations in GBP, based on data from Refinitiv, as at 1 October 2024.
It’s natural to have concerns about elections, but as far as your portfolio and the markets are concerned, history suggests they are a non-issue. Part of successful investing is understanding what you can control and letting your emotions take a backseat. By tuning out the noise and maintaining a long-term outlook, you can keep progressing towards your financial goals.
1 Annualised volatility shows what the level of variation in daily returns would be if it were spread out evenly over a 12-month period.
Investment risk information
The value of investments, and the income from them, may fall or rise and investors may get back less than they invested.
Past performance is not a reliable indicator of future results.
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