Will The US Presidential Elections Impact Investment Markets?

The short-term answer is: maybe a little.

But the medium to long-term response should always be… not enough to change your investment strategy. 

While the upcoming US presidential race between incumbent Joe Biden and his likely challenger Donald Trump could potentially have some short-term impact on US markets, historical data indicates there’s next-to-no difference between average returns in presidential election years and average returns in non-election years.

Which is to say… there’s no material benefit to basing your investment strategies on who might be presiding over the White House come this time next year.

That’s despite the fact that ASX trends tend to mirror what’s happening in American markets.

What markets dislike—and this is as true in Australia as it is in the United States—is uncertainty. 

That means there’s likely to be a period of short-term fluctuation as investors speculate around what effects a Democratic or Republican victory may have, before the market begins to settle back into more familiar patterns.

What may play a role is a Democratic or Republican sweep—where one party effectively controls the entire US government and holds the power to enact sweeping legislative changes.

With early polls suggesting Biden and Trump are the two candidates most likely to contest the presidential election in November, both parties are likely to garner their fair share of support.

Which means there’s no real reason to rush out and hedge your bets on one candidate or another. The smarter strategy is simply to play the long game and not be swayed by any short-term volatility.

Much as events like US presidential elections can cause fluctuations in the market, things like interest rates and inflation closer to home play a far more significant role in whether the ASX trends up or down.

So don’t read too much into what’s going on in Washington, D.C. 

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