What Happens to the Stock Market During Election Years?

Election years are a major concern for investors. The fiscal, foreign, and domestic policies of presidential candidates and parties can have a profound influence on the economy. Financial professionals and retail investors alike keep a close watch on their policy leanings. Many adjust their investments accordingly.

But are election years good for the stock market? The past few election cycles can give us a good idea of what might change. But, like anything else, the answer is more complicated than you’d expect. 

Let’s explore what recent history can tell us and what it might mean to invest during an election year for those who want to diversify their portfolio with a Gold IRA.

Stock Market Historical Performance During Election Years

It’s too early to speculate on who will win the next election, but trying to game the stock market based on potential outcomes is typically a fool’s errand anyway. A lot can happen between now and January 2025. What we can do, however, is look at historical trends for the U.S. market and how it performs during election years.

U.S. Markets Tend to Rise During Election Years

Historically, U.S. stock markets have shown an inclination to perform positively during presidential election years. Since 1952, the S&P 500 has averaged a 7% gain in an election year. That’s a modest gain, especially when you compare it to the average gains observed in the year preceding an election (16.8%) and the typical annual total returns for the U.S. stock market. 

Ultimately, this behavior underscores a pattern of market resilience and optimistic investor sentiment during periods of potential political change.

But what about re-election years, when an incumbent president is seeking a second term? The S&P 500 has not experienced a decline in re-election years since 1952, posting an average annual gain of 12.2%. This historical data suggests a tendency for the stock market to thrive during the electoral cycle, despite the inherent uncertainties that accompany elections.

Investing Based on Specific Policies May Prove to Be Risky

It can be tempting to invest based on what you anticipate might happen in an election. You might think that specific policies could cause the value of your investments to skyrocket (or plummet). But it’s a risky strategy that could do more harm than good. The market ebbs and flows, and it’s important to realize that before you start moving your money around.

Political platforms and the sectors they influence have an extremely mutable nature. What’s more, unprecedented impacts of global events (like the COVID-19 pandemic) make specifically highlighting market performance in an election year a difficult proposition.

Instead of trying to game the market based on who may or may not win an election, consider instead diversifying your investment portfolio. Because specific sectors can fluctuate dramatically from one election to the next, a steady hand might better suit your strategy.

Markets Don’t Care Which Party Is in Office

The truth of the matter is that market performance under different presidential administrations performs consistently. The stock market (and particularly the S&P 500) tends to rise over time, regardless of which political party holds power.

Yes, policy changes and political events can influence short-term volatility. But long-term trends typically result from a complex interplay of factors that extend far beyond political affiliation. Economic fundamentals, corporate earnings, and global events (like the pandemic or Great Recession) have a more pronounced impact on market movement.

What this shows investors is that the stock market has a built-in resilience to political change. 

Top-Performing Sectors During Election Years

Which stocks tend to perform best during election years? The financial services and energy sectors have often been big winners, especially since 1973. The tech sector, meanwhile, tends to fall flat during an election year. The only part of the market that has performed worse than tech stocks is materials.

If you have concerns about your investments and how to align your strategy with these trends, consider speaking with your financial advisor or investment planner. They can help guide you toward stocks and exchange-traded funds (ETFs) that might suit your goals.

Consider Investing in Gold During Volatile Markets

Within the context of election years, investors have historically perceived gold as a safe haven asset. Its allure typically stems from the reputation for stability among economic fluctuations and geopolitical tensions. Gold performance has historically demonstrated resilience during election cycles. It has either maintained or increased its value.

Gold can offer a sense of security to investors who are wary of stock market swings. It’s an excellent investment vehicle for retirement portfolios, provided you follow the rules and seek out the right precious metals for your IRA.

Are you thinking about transferring some of your existing retirement assets to a self-directed Gold IRA but aren’t sure where to start? Advantage Gold can help. Our Gold IRA professionals have been helping investors diversify their holdings with physical gold for years. Our trusted team can help answer your questions about Gold IRAs and how to invest in one.

To learn more about the benefits of a self-directed Gold IRA, call Advantage Gold or request your free Gold IRA guide today.