The Historical Impact of US Elections on Global Market Stability

US Presidential Elections and Stock Market Impact US presidential elections have a significant impact on stock market performance, following predictable patterns throughout the four phases of the presidential cycle: post-election year, midterm year, pre-election year, and election year. Historically, the pre-election and election years tend to yield the highest returns, while post-election and midterm years often bring more uncertainty and volatility.

The following patterns are observed in the stock market:

• Pre-election and election years: Typically strong performance.
• Post-election and midterm years: Higher uncertainty, with events such as wars, recessions, and bear markets more likely to occur in the first half of a presidential term.

Market Reactions on Election Days On election day, the S&P 500 shows an average positive return of 0.92%, driven by market optimism. However, the day after the election, the S&P 500 typically posts an average negative return of -0.71%, as the initial euphoria subsides. Historically, election days have brought short-term volatility but generally follow long-term positive trends.

Post-Election Market Corrections A change in power in the White House has often been followed by market lows within two years. This pattern has been observed in major elections, including 1960, 1968, 1980, 2000, 2008, 2016, and 2020. Even when the incumbent president retained office, markets sometimes reached their lowest points in the early years of the term.

The Presidential Indicator An indicator that tracks S&P 500 performance from July 31 to October 31 in election years has shown that positive market performance typically signals an incumbent president victory. Negative performance, on the other hand, has indicated a change in power in 89% of past elections. As of 2024, this indicator points to a Democratic victory.

The Historical Impact of US Elections on Global Market Stability

US Presidential Elections and Stock Market Impact US presidential elections have a significant impact on stock market performance, following predictable patterns throughout the four phases of the presidential cycle: post-election year, midterm year, pre-election year, and election year. Historically, the pre-election and election years tend to yield the highest returns, while post-election and midterm years often bring more uncertainty and volatility.

The following patterns are observed in the stock market:

• Pre-election and election years: Typically strong performance.
• Post-election and midterm years: Higher uncertainty, with events such as wars, recessions, and bear markets more likely to occur in the first half of a presidential term.

Market Reactions on Election Days On election day, the S&P 500 shows an average positive return of 0.92%, driven by market optimism. However, the day after the election, the S&P 500 typically posts an average negative return of -0.71%, as the initial euphoria subsides. Historically, election days have brought short-term volatility but generally follow long-term positive trends.

Post-Election Market Corrections A change in power in the White House has often been followed by market lows within two years. This pattern has been observed in major elections, including 1960, 1968, 1980, 2000, 2008, 2016, and 2020. Even when the incumbent president retained office, markets sometimes reached their lowest points in the early years of the term.

The Presidential Indicator An indicator that tracks S&P 500 performance from July 31 to October 31 in election years has shown that positive market performance typically signals an incumbent president victory. Negative performance, on the other hand, has indicated a change in power in 89% of past elections. As of 2024, this indicator points to a Democratic victory.

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The Impact of US Elections on Global Bond Markets

Uncertainty and Haven Demand US elections inject significant policy uncertainty into global markets, driving investors toward safe-haven assets like US Treasuries. Historically, bond yields have responded to election outcomes, with notable yield drops observed in past election cycles. For example, after the 2000/2001 elections, the yield on the US 2-year bond dropped nearly 60%.

Fiscal Policies and Bond Yields Changes in fiscal policies post-election can dramatically influence bond yields:

• Increased risks: Political or economic risks introduced by a new administration can push bond yields higher, as seen in 2016 when US 2-year bond yields surged 96% in response to President Trump’s fiscal policies.
• Aggressive fiscal spending: Higher fiscal spending increases debt and inflation, driving up bond yields.
• Conservative policies: Fiscally conservative policies tend to keep inflation lower and bond yields down.

Geopolitical and Trade Implications Trade policies from the incoming administration, particularly those focused on protectionism, can lead to global trade tensions, supply chain disruptions, and inflationary pressures, impacting bond markets. Countries heavily involved in trade with the US, such as China, Mexico, and Canada, are particularly sensitive to these policy shifts, leading to fluctuations in global bond markets.

In conclusion, US elections have a profound influence on both global stock markets and bond markets, impacting everything from inflation expectations to monetary policies and geopolitical risks. Understanding these dynamics is crucial for investors navigating market volatility during election cycles.