Key Insights
- The health of the U.S. economy appears to have played an important role in whether the incumbent party retained the presidency in an election year.
- In turn, whether the incumbent party won the White House seemed to influence trends in market volatility before and after past elections.
- We believe that investment decisions should be based on longer‑term fundamentals, not near‑term political outcomes.
The U.S. presidential election cycle is ramping up. So is media coverage and a barrage of political advertising.
The contest between Democrat Joe Biden and Republican Donald Trump—and its implications—looms large in the minds of investors both in the U.S. and abroad.
Let's explore the historical relationship between U.S. presidential elections and the performance of the broader U.S. equity market.
Correlations exist in varying degrees, but clients should focus on what ultimately matters over the longer term: the economy and business fundamentals.
Know the data's limits
The market performance data used in this study go all the way back to 1927. However, only 24 presidential elections have occurred over this period, so it's difficult to draw statistically significant conclusions about how those elections impacted stock market returns.
Moreover, we would caution against focusing on a single variable that ignores the many other factors that historically have driven market returns.
Some of the elections in our sample occurred in years when major economic developments—not the elections themselves—had an outsized influence on equity markets.
Examples include the Great Depression (1932), World War II (1940 and 1944), the bursting of the technology bubble (2000), the global financial crisis (2008), and the COVID‑19 pandemic (2020).
Has the timing of U.S. presidential elections mattered for stock market returns?
Average and median total returns for the S&P 500 Index were modestly lower in presidential election years compared with both non‑election years and with the long‑term average for the past 96 years of market performance (Figure 1).
S&P 500 has posted lower total returns in presidential election years
(Fig. 1) Average and median calendar year returns
December 31, 1927, to December 31, 2023.
Past performance is not a reliable indicator of future performance.
Source: T. Rowe Price analysis of data from Bloomberg Finance L.P. See Additional Disclosure.
Total returns include gross dividends. We use average and median average annual returns to see if an outlier data point might be skewing the results. Conclusions are stronger when the average and median returns are either both positive or both negative.
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