Should a U.S. Election Result Change How Clients Are Positioned?

Every four years, the phone rings with the same question. A client sees the headlines, feels the uncertainty and wonders whether this is the moment to change course. The more useful question may be what markets have actually done around elections. Our review of ten U.S. presidential elections from 1988 to 2024 suggests that the vote creates short-term noise, but looking through the noise might be a more effective angle.

Bonds: A Brief Spike, Then a Retreat

Treasury yields have tended to edge higher in the days around election day as investors weigh what the incoming administration could mean for fiscal policy and deficit spending. That reaction has rarely lasted. As the uncertainty resolves, attention returns to fundamentals and yields drift lower. Across the ten elections, the average 10-year U.S. Treasury yield stood nearly 12 basis points below its election day level 40 trading days later.

Stocks: Waiting for Clarity

Equities have followed a similar script. They have often softened in the weeks surrounding the vote as investors wait for an answer, and that hesitation has tended to lift once the result is known. The average S&P 500 Index return over the 40 trading days after election day was approximately 2.5%, and the gains grew the further markets moved from the vote.

The Cycle Tells You More Than the Party

The natural next question is whether the winning party matters. Since 1945, the S&P 500 Index has averaged an annual total return of 12.9% in U.S. dollar terms. Under Democratic presidents that figure was 15.1%, and under Republican presidents it was 10.8%. A gap of 4 percentage points looks meaningful, yet it is hard to turn into a dependable portfolio strategy, partly because it reflects timing as much as policy. Democratic presidents have more often taken office early in an economic recovery, while Republican presidents have more often inherited cycles closer to their peak.

¹ The index noted is unmanaged, is not available for direct investment, and is not subject to management fees, transaction costs or other types of expenses that a portfolio may incur. These limitations and differences should be carefully considered when evaluating index performance.

A more telling pattern emerges when returns are sorted by the year of the presidential term. The second year of a first term has averaged just 3% in S&P 500 Index total return, a period when new administrations tend to pursue difficult policies while political capital is at its highest. The third year has averaged 23%. The party and the president were the same, but the market environment was not.

For advisors, the takeaway is not that politics is irrelevant, but that it may be the wrong variable to watch. Clients who look through election season noise have historically been better served than those who react to it. History suggests a simple theme: stay invested, not political.