While UK investors are busily contemplating what the upcoming Budget might do to markets, perhaps they should be more concerned with the US election on 5th November. After all, the US accounts for just over 60% of global market capitalisation - and as the saying goes, "if America sneezes, we all catch a cold".
During Donald Trump's last tenure, markets boomed - though whether that was due to economic prowess or a side effect of his Twitter account is anyone's guess.
Fast forward to today, and we're in a very different world, with conflicts in Ukraine and the Middle East adding layers of complexity and uncertainty.
So, the question is: Will Kamala bring calm to the markets, and would Donald "Trump" the status quo once again?
A Look Back in Time
Historically, US presidential elections have had minimal impact on stock market performance.
Yes, you read that correctly.
Despite the fireworks (pun intended), the drama, and the occasional debate meltdown, the markets tend to just carry on, business as usual.
Over the past 13 presidential elections since 1972, stock market volatility in the US has been surprisingly...unremarkable.
In the 100 business days leading up to and following each election, volatility was generally lower than the historical average.
To illustrate this, take a look at the chart below:
This chart shows the annualised volatility of daily S&P 500 returns in GBP, measured over the previous month (21 business days), starting 100 days before and ending 100 days after each US presidential election since November 1972.
As you can see, for most elections, volatility was lower than the historical average. The major exceptions are the 2000 and 2008 elections, which coincided with significant global events unrelated to the elections themselves - events that would have rattled the markets regardless of who was campaigning.
Markets Have Seen It All
The key takeaway here is that markets are forward-looking and remarkably efficient at pricing in expectations. They digest a vast array of factors - economic indicators, corporate earnings, global events - and yes, political outcomes too. But in the grand scheme of things, presidential elections are just one piece of a much larger puzzle.
Think of the markets as a pilot navigating through various weather conditions. A bit of turbulence might jostle things momentarily, but it doesn't derail the entire flight plan.
Long-Term Perspective: The Bigger Picture
If we zoom out and look at the longer-term performance of US and global stock markets from 1971 to 2024, a clear pattern emerges: markets have generally trended upwards, regardless of who occupied the Oval Office.
This chart shows the price of global shares and US shares in GBP from August 1971 to September 2024. The grey bars indicate US election years.
Notice how the light grey bars - marking election years - don't correspond with any drastic market movements. The markets continued their overall upward trajectory, weathering various storms along the way.
The markets just carry on regardless of whoever might be taking office.
So, Should You Change Your Financial Plans?
In a word: no.
Presidential elections make for great headlines and heated debates, but they shouldn't sway your investment strategy. Reacting to short-term news can often do more harm than good. Emotional, knee-jerk decisions rarely align with long-term financial goals.
The best course of action is to stay the course. Maintain a diversified portfolio that aligns with your risk tolerance and investment horizon. Markets will have their ups and downs - that's a given - but over time, they tend to reward patience and discipline.
While it's easy to get caught up in the drama of election season - especially with the 24/7 news cycle and social media amplifying every development - remember that history is on our side. Markets have carried us through numerous elections, wars, recessions, and even pandemics.
So my advice is, sit back, enjoy the fireworks on 5th November whatever the outcome and focus on what you can control: your financial plan, your savings rate, and your long-term goals.
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