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The impact of US Presidential elections on markets

By Adrian Vella, Head – Investment Network at MeDirect Bank (Malta) plc

Article published on the Malta Business Weekly

In a world of constant change and uncertainty, there’s one thing we can be certain of in 2024 and that is that there’s going to be a US Presidential election in November. An American election always has an impact on investment markets and in this article we will take a look at some of the patterns that have emerged down the years and things investors should look out for. While every election is different and what’s happened before will not necessarily happen again, we hope this will help you to think through some of the potential scenarios that could develop as the year progresses.

What happens to the markets in US Presidential election years?

Having a look at the past, an election year normally brings an overall positive year for US equities. But it’s certainly not guaranteed. As research from Morgan Stanley shows, on average, the S&P 500 increases 11.28 per cent in an election year. At the extremes, however, you find a 43.6 per cent increase in 1928 and a 37 per cent decrease in 2008. 1928 and 2008, of course, are very significant years; the former being the height of the boom which preceded the Wall Street Crash of 1929 and the latter the year of the Great Financial Crisis. What this also tells us is that broader economic factors can have a greater impact on markets and investments than the election itself.

Things to look out for

When thinking about how a US Presidential election might impact your portfolio both this year and into the future, there are a few things you should look out for. The first, perhaps obviously, is policy differences. Different candidates will have different priorities when it comes to major policy areas like healthcare, energy, and security. These policy differences can have a material impact over the four years of a Presidential term on the performance of certain sectors or particular equities. It’s  important, therefore, to be aware of them and to plan accordingly.

Another important factor to keep in mind is the scale of a victory. The American system needs some level of agreement between the President and Congress to function and in this respect the results of the elections for the House of Representatives and the Senate, which will happen on the same day as the Presidential election, will be just as important. Should one party win all three elections, then there is a much greater chance of the President’s policies being put in place. If not, expect greater uncertainty in terms of the policy agenda.

In addition to the above, also keep in mind that decisions taken before the election will have consequences after it. It’s inevitable that during an election year, politicians are reluctant to pursue action which might cost them votes. In an already challenging economic and geo-political context, decisions which are, or are not, taken in the run up to November might end up being reversed fairly quickly once 2025 arrives.

Get the right advice

Understanding the markets and what drives them is complex and investment decisions must be taken based on each individual’s financial situation, time horizon and risk appetite. There’s no doubt that US Presidential elections can have an impact on markets but there are always many other issues and factors to consider. Having a diversified portfolio and price averaging opportunities are key elements for a profitable portfolio for the long term. At MeDirect, we do our best to ensure we provide you with as much timely information as we can through our website. If you would like to talk to one of our advisors about your investments you can also book an appointment here.

The information given in this article is for general information purposes only and is neither intended to provide legal or other professional advice nor does it commit MeDirect Bank (Malta) plc to any obligation whatsoever. The information given is not intended to be a suggestion, recommendation, or solicitation to buy, hold or sell, any securities and is not guaranteed as to accuracy or completeness.

If you invest in any product, you may lose some or all of the money you invest. The value of your investment may go down as well as up. Any income you get from any investment may go down as well as up. The performance figures quoted refer to the past and past performance is not a guarantee of future performance or a reliable guide to future performance.

MeDirect Bank (Malta) plc, company registration number C34125, is licensed by the MFSA to undertake investment services under the Investment Services Act (Cap.370).

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