Election Impact: Why You Don't Know How USA Elections Swing Global Stock Markets
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Election Impact: How USA Elections Swing Global Stock Markets
1. The Historical Context
With every election, the stock market experiences ripples as investors grapple with the potential impact of elected officials on economic policies. But how much do elections truly affect the stock market? Let’s explore.
2. The Year Leading Up to an Election
Uncertainty: In the year preceding an election, returns tend to be lower as investors navigate uncertainty.
Equities: Equities gain an average of less than 6% during this period, compared to over 8% in non-election years.
Bonds: Bond returns hover around 6.5%, significantly less than their usual 7.5%.
3. Presidential Elections
Volatility: Presidential elections every four years can cause significant volatility. Investors grapple with uncertainty about the country’s direction.
Post-Election Performance:
First Year: Stock market returns tend to be lower in the first year after the election.
Party Impact:
New Party: If a new party is elected to the presidency, stock market returns average around 5%.
Re-Election or Party Retains Power: Returns are slightly higher, averaging 6.5%.
4. Beyond the US
Global Impact: Political events, especially US elections, can create volatility in global markets.
US Dollar: Historical data shows a consistent relationship between US presidential cycles and the US dollar.
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