The media loves election season.

Unfortunately, this means we’re exposed to countless theories about how the market will react.

I’ll save you the suspense (for which there’s plenty of support for this statement below):

While the election may be important for other reasons, who ultimately wins probably won’t matter as much to our economy and portfolios as the media would like you to believe.

Let me illustrate the truth of this statement by revisiting the last two (highly contentious) elections.

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Elections and Investing

Just before the 2016 election, the prominent opinion amongst Democrats was that a Trump victory would mean chaos for the economy and stock market.

Well, GDP grew from $19 trillion to $22 trillion, and the S&P 500 increased from 2,131 on the night before the 2016 election to 3,310 just before the 2020 election.

In other words, despite the pandemic-induced bear market that defined Trump's final year in office, the market increased by about 55% during his term (not including dividends).

Leading up to the 2020 election, Republicans largely felt that Biden’s policies would result in an inevitable decline for both the economy and the stock market.

Well, GDP has risen from $22 trillion to its most recent reading of $29 trillion, and the S&P 500 increased from 3,310 to ~5,800 today—an increase of about 75% during Biden’s tenure (not including dividends).

So much for electoral doomsday scenarios.

The point I’m making here has nothing to do with the presidents.

It’s that the economy and stock market have a way of figuring out the best way forward regardless of who is in the White House and/or who has the majority in Congress.

That’s not to say that elections don’t matter; they certainly do.

They just don’t dramatically alter the trajectory of the economy or market in the way that most people think they do.

As further evidence, below is an interesting graphic that illustrates just how overblown the assumed impact of elections is from a purely economic and investing perspective.

The graphic shows all election outcomes since 1947, including each individual party in complete power as well as a divided government.

The results are remarkably similar across all possibilities.

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Bottom Line

People can (and do!) twist this data to fit their preferred narrative.

But I believe that the correct observation is that the long-term trend is up for both our economy and the stock market regardless of which party occupies the White House.

We shouldn’t find this to be all that surprising.

While the political narratives fluctuate dramatically, the long-term reality of investing is much more reasonable because businesses are largely rational.

Here’s what I mean:

When we invest, we place our faith in companies—thankfully, not the government—that are led by some of the smartest business minds in the world.

And the management teams of these companies are tasked with navigating the complexities of ever-changing government policies and pivoting accordingly to foster growth for their respective businesses.

A natural by-product of this collective growth is that the economy has grown, and stock prices have risen over time.

And since our portfolios ultimately reflect the long-term success of the businesses we own, our portfolios should grow along with them.

Thus, as the election looms large, we should take comfort in the fact that the great companies of the world make necessary adjustments in response to policy changes, both large and small.

So, while I know it can be tempting to react emotionally to the coming election, history has repeatedly shown that we can mostly ignore the perpetual noise of political drama—at least with regard to our portfolios.

In other words, we’d be wise to stay the course 😊

Stay wealthy,

Taylor Schulte, CFP®