Everyone has that one friend who swears they’re moving their entire 401(k) to cash because "if so-and-so wins, the whole system collapses." Honestly, it’s a classic move. We see the headlines, the attack ads, and the massive policy shifts being promised, and our survival instinct kicks in. We want to protect what we've built. But if you actually look at the hard numbers—not the Twitter rants or the cable news panic—the relationship between the White House and your portfolio is... well, it’s kinda complicated.
The truth? The market usually doesn’t care about the "who" as much as it cares about the "what next."
The Performance Myth: Red vs. Blue
You've probably heard that Republicans are better for stocks because of deregulation and tax cuts. Or maybe you've heard Democrats are better because of government spending and consumer support.
If we look at the data since 1945, the S&P 500 has actually performed better under Democratic presidents on average. We’re talking a mean compounded annual growth rate (CAGR) of about 9.6% for Democrats versus 6.2% for Republicans. But wait—don't go changing your voter registration just for your brokerage account. The median return is actually higher under Republicans (10.2% vs 8.3%).
What does that tell us? It means a few massive "outlier" years—like the post-WWII boom or the 90s tech explosion—skew the averages. When you strip away the noise, the market has historically trended upward regardless of who is sitting in the Oval Office.
How Will Election Affect Stock Market Trends in the Short Term?
The real impact of how will election affect stock market movements is usually felt in the volatility. Markets hate uncertainty. It’s like driving through fog; you slow down because you don't know if there's a brick wall or a clear highway ahead.
Historically, the 12 months leading up to a presidential election see higher-than-average volatility. Investors are trying to price in two completely different realities. For example, in the 2024 cycle, traders had to weigh the "Harris reality" (renewable energy, corporate tax hikes) against the "Trump reality" (tariffs, deregulation, oil/gas boosts).
- The Pre-Election Slump: Stocks often trade sideways or show modest gains in the three months before the vote.
- The Post-Election Relief: Once the winner is declared—regardless of the party—the market often rallies. Why? Because the "fog" has lifted. The uncertainty is gone.
- Sector Rotations: This is where the real action happens. While the broad S&P 500 might stay steady, individual sectors go wild.
Take the 2024 outcome as a prime example. The day after the election, the Dow surged over 3.5%. Why? Investors bet big on a "deregulation trade." Small-cap stocks (the Russell 2000) jumped nearly 6% because they thrive on domestic-focused policies. Meanwhile, renewable energy stocks took a massive hit. They weren't reacting to the economy; they were reacting to the change in expected federal subsidies.
Does "Divided Government" Actually Help?
There’s an old Wall Street saying that the best outcome for stocks is a "gridlock" in Washington.
Basically, if one party holds the White House and the other holds Congress, it's very hard to pass radical new laws. For a business, this is great. It means the rules of the game aren't going to change every six months. Historical data from U.S. Bank shows that the highest average returns often occur when we have a Democratic president and a Republican or split Congress.
It’s almost like the market likes it when politicians are too busy arguing to actually do anything.
The 2026 Midterm Horizon
As we look toward the 2026 midterms, the cycle starts all over again. Midterm years follow a very specific pattern. Usually, the first half of a midterm year is "meh" for stocks. But the 12-month period after a midterm election has historically been one of the strongest in the entire four-year presidential cycle.
Why? Because the market starts looking toward the next presidential race and pricing in the possibility of change—or stability.
Why You Should Probably Do Nothing
Here’s the part most "experts" won't tell you: your personal feelings about a candidate are a terrible investment strategy.
If you sold your stocks in 2016 because you were worried about a Republican win, you missed a massive bull market. If you sold in 2020 because you were worried about a Democratic win, you missed another one.
The market is driven by corporate earnings, interest rates (thanks, Fed), and global trade. The president is just one piece of a very large, very messy puzzle.
📖 Related: No Taxes on Overtime: What Most People Get Wrong About the New Rules
Actionable Steps for Election Cycles
Instead of panic-selling or betting the farm on a "red wave" or "blue wall," try these steps:
- Check your sector exposure. If your portfolio is 90% "green energy" or 90% "big bank" stocks, an election will swing your net worth violently. Diversify to dull the blade.
- Ignore the "Election Week" noise. Avoid looking at your accounts the 48 hours after the results. The initial "knee-jerk" reaction is often corrected within a month.
- Watch the Federal Reserve, not just the White House. In 2026, the Fed's stance on inflation will likely matter more to your bottom line than which party picks up three seats in the Senate.
- Keep your "Election Hedge" small. If you really want to play the election, do it with "mad money"—no more than 5% of your portfolio. Use the rest to stay the course.
The bottom line is that the stock market has survived wars, depressions, and every kind of politician imaginable. It’ll probably survive this next one, too.
Next Steps: Review your current portfolio's sector weightings to see if you're over-exposed to industries heavily dependent on federal subsidies or specific trade tariffs. Then, consider setting up an automated investment plan that ignores the news cycle entirely.