The 2024 presidential election: The presidential race between Vice President Kamala Harris and former President Donald Trump remains incredibly close, with neither candidate holding a decisive lead in the polls. While this election is commanding headlines, its direct impact on the markets has so far been minimal. Historically, elections often create uncertainty, but the data suggests that over the medium to long-term, markets are driven more by economic fundamentals than by the outcome of a single election.
Historical impact of presidential elections: Going back 70 years, market performance has been much more influenced by underlying economic conditions than by which party occupies the White House. For example, U.S. Bank research indicates that, on average, the markets perform similarly whether Democrats or Republicans win the presidency. In fact, markets tend to react more to economic policies that influence factors like tax rates, regulation and government spending. There is also no significant statistical relationship between a single party controlling both Congress and the presidency and long-term market disruption or outperformance. Whether it’s a divided government or single-party control, markets have shown resilience as long as the economic environment remains stable.
Corporate earnings: While elections capture public attention, the markets are much more focused on corporate earnings. Earnings reports provide a direct indicator of company health and future growth potential. Investors look to earnings to assess whether companies are increasing profitability, managing costs effectively and expanding market share. As long as corporate earnings remain robust, markets tend to perform well, even in the face of political uncertainties. Conversely, weaker earnings can lead to market declines, regardless of favorable political developments.
Looking ahead: History suggests that as we navigate the election cycle, investors worried about potential election-related volatility should focus on how businesses are performing and adapting to shifting economic conditions. The political landscape, while attention-grabbing, has historically had a comparably minimal impact on the broader investment markets.