As election season approaches, the media loves to stir up anxiety with predictions about how the outcome could impact the markets and economy. While these headlines may grab attention, they often exaggerate elections' influence on long-term financial outcomes.
Let me cut through the noise: Regardless of who wins, history shows that elections don't significantly impact the economy or your portfolio as much as the media suggests. To illustrate this, let's look back at the last two contentious elections.
Before the 2016 election, many Democrats feared that a Trump victory would spell economic disaster. But what happened? GDP rose from $19 trillion to $22 trillion1, and the S&P 500 grew from 2,131 to 3,3102 before the 2020 election—a 55% increase. Even during the final year of Trump's presidency, which was marked by the onset of the COVID-19 pandemic, the economy managed to recover from a sharp downturn. The market experienced a brief but severe crash in early 2020 as the world faced unprecedented lockdowns, business closures, and economic disruptions. However, swift government interventions, including stimulus packages and monetary easing, helped stabilize the markets, resulting in a rebound later that year. Despite these challenges, the market's overall performance during Trump's tenure remained strong.
Similarly, in 2020, Republicans warned that Biden’s policies would lead to economic decline. However, under Biden’s tenure, GDP grew from $22 trillion to $29 trillion1, and the S&P 500 surged from 3,310 to around 5,8002—an impressive 75% increase. Despite concerns about increased regulations and spending, the economy continued to grow, supported by solid business fundamentals and corporate adaptability to policy changes.
Trump's tax policies, particularly the 2017 Tax Cuts and Jobs Act, significantly drove economic growth during Biden's administration by reducing corporate tax rates, allowing businesses to reinvest and expand. Notably, even with the change in the presidency and a Democrat-controlled Congress, these tax cuts were largely untouched due to the record revenue flowing into the U.S. Treasury.
These examples demonstrate that the economy and stock market continue to find ways to thrive, regardless of who occupies the White House or which party holds Congress.
Now, that's not to say elections are insignificant. They matter, just not in the dramatic way many think they do regarding long-term economic or market performance.
Consider a historical market performance analysis from 1949 onward to reinforce this point. The results were strikingly similar whether we had a divided government or one party in control. This suggests that while political narratives change, the trajectory of the economy and markets remains consistently upward.
The reason is simple: we’re not betting on the government when we invest. We’re investing in businesses led by some of the world’s smartest minds. These companies adapt to changes in government policy, positioning themselves for growth in a constantly evolving environment.
Over time, this business growth drives the economy and stock prices upward. And because our portfolios comprise shares in these businesses, our investments also grow.
As this election nears, political drama makes it natural to feel swayed. Still, history has repeatedly shown that long-term investors who stay the course do just fine, no matter the election result.
If you have any questions or concerns, feel free to reach out. I’m here to help!
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Sources:
[1] St. Louis Fed
[2] MarketWatch