Election season has a way of making a portfolio feel political. The ads get louder, the forecasts get bolder, and by late October plenty of investors start wondering whether to sell before Tuesday, November 3 and buy back once the results are in.
It is one of the most common questions we hear in an election year. The short answer is no. Over long stretches, the stock market has paid little attention to which party holds Congress or the White House, and investors who tried to trade around elections have usually paid for it.
What History Shows About Midterm Years
Midterm years have a reputation for rough patches, and some of it is earned. Capital Group found that since 1970, stock returns in midterm years have swung more than in other years, with a median standard deviation near 16% compared with 13%. A Cantor Fitzgerald analysis reported by Reuters found that the S&P 500 fell 5% or more during September and October in 15 of the 24 midterm years since 1930.
The months after the vote tell a different story. According to Cambridge Associates, the S&P 500 has averaged a 19% return in the 12 months following a midterm election over the past century. It declined in only one of 25 such periods, after the 1930 election.
This fall has been calmer than usual. In September, Reuters reported that stocks sat near record highs while measures of expected volatility were close to their lows for 2026. Calm markets can still move fast, which is one more reason not to build a plan around a guess about the next few weeks.
Why Election Results Move Markets Less Than You Might Expect
Stock prices reflect what investors expect companies to earn in the years ahead. An election can nudge those expectations through tax or trade policy, but it is rarely the main driver. Cambridge Associates makes the point directly. Even knowing the outcome in advance would not tell you the path of growth, inflation, interest rates, earnings or valuations.
Capital Group economist Darrell Spence argues that presidents get too much credit and too much blame for the economy, since so many other forces shape growth and returns. The long record backs him up. Capital Group calculated that $1,000 invested in the S&P 500 when Franklin Roosevelt took office in 1933 would have grown to more than $21 million by the end of 2023. Eight Democrats and seven Republicans held the presidency over that span.
Markets also tend to adjust before anyone votes. By Election Day, prices already reflect what polls and forecasts suggest, so the only thing left to trade on is a surprise. And surprises don't always play out the way people expect. Before the 2016 presidential election, many investors expected stocks to drop sharply if Donald Trump won. Instead, the market rallied.
The Cost of Sitting It Out
When people feel uneasy, they reach for cash. Capital Group found that from 1992 through 2023, money market funds took in about $195 billion in presidential election years, while stock funds took in $37 billion.
That comfort has a price. Capital Group compared three hypothetical approaches across 23 election cycles: staying fully invested, investing a set amount each month, and holding cash until after the election. The investor who waited in cash finished last in 17 of the 23 periods.
To come out ahead by stepping aside, you have to be right twice, once on when to sell and again on when to buy back. Most people miss the second call. The moment that feels safe to return usually comes after prices have already moved.
Where the Election Can Affect Your Plan
None of this means elections don't matter to your finances. Congress writes tax law, funds Social Security and Medicare, and sets the rules for retirement accounts. Those decisions can change how you approach Roth conversions, charitable giving or the timing of a business sale.
The difference is time. A new law moves through committees, votes and effective dates, which gives you room to respond once the details are known. That is planning work, done carefully after a bill passes, rather than a trade placed on election night. If you own a business, our article The Hidden Impact of Economic and Political Changes on Business Owners' Financial Plans covers how tax, regulatory and labor rules can shift your numbers.
What to Check Before November 3
A few steps make sense in any year, and they tend to matter more when headlines get loud.
Compare your allocation with your target. If a strong year has pushed stocks above where your plan says they should be, rebalancing makes sense on its own terms. The election doesn't change that math.
Confirm your cash reserve. Money you will need from your portfolio in the next year or two should already sit in cash or short-term bonds, so a rough month never forces you to sell stocks at a low point.
Keep contributions on autopilot. Regular 401(k) and IRA contributions buy at whatever prices the market offers, including any dip around the vote.
Write down any change you're tempted to make. Look at it again in 30 days. If it still makes sense once the results are old news, it is worth a conversation with us.
If you are retired or within a few years of it, the cash reserve does most of the work. Our Decade Before Retirement checklist walks through how to set one up alongside the rest of your income plan.
Common Questions About Elections and Investing
Should I move to cash until after the election?
For most long-term investors, no. History shows that waiting in cash has usually cost more than it saved. If you need money soon, set it aside because of your timeline, whatever the calendar says about elections.
Does it matter which party wins?
Researchers have published average returns by party, but those averages rest on a few dozen elections and swing heavily on a handful of years, such as 2008, when the financial crisis hit during the campaign. Stocks have grown under both parties and under divided government.
What if the results are close or delayed?
Cambridge Associates notes that close races can delay clarity on who controls Congress and add to short-term volatility. That is a good reason to have your cash reserve in place now. It is not a reason to sell.
I'm retired and living on my portfolio. Should I do anything differently?
The main risk for retirees is having to sell stocks during a decline to cover living costs. Keeping one to two years of planned withdrawals in cash or short-term bonds lets you draw from that reserve during a rough stretch and leave your stocks time to recover.
Past performance does not guarantee future results. This article is for general information only and is not individualized investment, tax or legal advice.
Related Reading
- The Hidden Impact of Economic and Political Changes on Business Owners' Financial Plans
- The Decade Before Retirement: A Financial Checklist
- Financial Planning Fundamentals: Five Areas Every Individual and Family Should Review
If the headlines have you second-guessing your plan, we're glad to look at it with you. Contact MJT & Associates to schedule a consultation.
