How does a U.S. presidential election impact the stock market?
Long story short, it really doesn’t.
Because the market hates uncertainty, history has shown that the time around the election may bring more market volatility than is normal (although 2020 has not been normal and we have experienced COVID-related periods of volatility earlier in the year). However, the choice of which party has the White House has little long-term impact on the stock market. Certain sectors may benefit more than others due to the winning party’s priorities (i.e., carbon energy versus renewable energy) but the impact on the overall market is slight and caused by emotional investing, not the election itself.
Year after year, decade after decade, the stock markets and the economy continue to grow, regardless of which party is in power.
What to Expect in the 2020 Election
With the increase in mail-in voting, we may experience a period of increased volatility after the election but before the winner is officially determined. This could take a while — for example, results in Georgia may not be certified until into December — but there is no reason to expect that volatility to continue in the long-term.
What You Should Do
Remember, the risk to your portfolio isn’t a volatile market — it’s your reactions to a volatile market. You should ensure that your portfolio is balanced and aligned with your risk tolerance, then hold steady. Keep in mind your long-term perspective as you move toward your goals; remember the election is determining the next four years but you are making investment decisions about the rest of your life. Talk to a financial advisor if you have questions about balancing your portfolio and managing your risk.