Do U.S. Election Results Influence the Stock Market? Given the
significant impact U.S. fiscal policy can have, one might expect that the
political party in charge, controlling the White House and Congress, would
greatly influence equity markets.
Understanding the Impact
Key Takeaways
Over the years, Investopedia has examined elections to identify patterns in how the president's party and Congress influence U.S. equity markets. Surprisingly, our findings suggest that the party in control makes no clear difference for U.S. equities markets.
Assessing Market Impact
To assess the market impact of U.S. elections, we analyzed the Dow Jones Industrial Average (DJIA). We compared its level at the start of October (before a November election) and at the end of March the following year. This timing allowed us to evaluate the market's reaction under different political scenarios.
Changing Political Landscape
In recent decades, political control has become more divided, with unified governments representing only a minority of congressional sessions since 1980. Our analysis aims to shed light on how markets respond to varying scenarios of political control.
Unified Control: Presidency and Congress Held by Same Party
Periods of unified political-party control have become less common. In 2016, when the Republicans controlled both the White House and Congress, the DJIA rose about 10%. However, during the 2008 financial crisis, a similar situation led to a 26% decline.
Democratic President, Congress Controlled by Republicans
Instances where a Democratic president coexists with a Republican-controlled Congress have seen positive market reactions. In 2014, during President Obama's second term, the DJIA climbed from around 17,000 to over 18,000 by March 2015.
Democratic President, Split Congress
Market reactions have also been favorable when a Democratic president faces a split Congress. In 2012, during President Obama's second term, the DJIA rose around 7% from October 2012 to March 2013.
Republican President, Congress Controlled by Democrats
Surprisingly, markets have reacted positively when a Republican president faced a Congress controlled by Democrats. For example, in 1990, under President George H.W. Bush, the DJIA climbed about 16%.
Republican President, Split Congress
Instances of a Republican president with a split Congress have shown varied market reactions. In 2018, during President Trump's term, the DJIA fell around 7%.
Does the Election of a President Affect Stock Prices?
Despite the divergent fiscal policies of the major U.S. political parties, our data suggests that the party in power makes no clear difference in U.S. equities markets.
How Do U.S. Stock Markets React to a Unified-Party U.S. Government?
Historical data indicates that the stock market, using the DJIA as a proxy, often reacts positively to a unified government, except for the 2008 global financial crisis.
Do Stock Markets Go Down When a Republican President Is Paired with a Democratic Congress?
Our research indicates that the U.S. stock market, via the DJIA, views positively a Republican president balanced by a Congress controlled by Democrats.
The Bottom Line
Despite the different fiscal policies of the two major U.S. political parties, our data suggests that the party running the country makes no clear difference in U.S. equities markets. Furthermore, even when Congress is controlled by another party, equity markets react similarly, showing no clear pattern influenced by the party in power.