The U.S. presidential election is approaching fast. Elections are an important event risk for global financial markets due to their influence on market returns. In addition to heightened volatility leading into the elections, the president-elect can make big changes to policies related to foreign affairs, trade, the economy, taxes as well as regulations. Therefore, market participants around the world are keeping a keen eye on the elections and are making tactical adjustments.
With both candidates coming in very close in the polls,1 it’s worthwhile examining how markets have typically performed in election years versus non-election years.
S&P 500 returns before and after presidential elections show that they aren’t meaningfully distinct from non-election-year returns.2 Since different stocks have different sensitivities to policy changes, it’s important to look beyond the broad market and dive deeper into returns by size and style.