What does the U.S. presidential election mean for investors? How does the four-year cycle affect the stock market

If your investment portfolio holds US stocks or related assets, the upcoming US presidential election may trigger a new wave of reflection on market prospects. The quadrennial presidential election not only changes the political landscape but also has a profound impact on financial markets. So, how often does the US presidential election occur? And how does it influence global stock markets?

US Presidential Election Cycle: Every Four Years

The US presidential election takes place every four years. This fixed political cycle has become a key date marked by investors on their calendars. Each election triggers a series of chain reactions, from policy adjustments to market sentiment fluctuations, and to reallocation of investment opportunities.

How Does the US Election Work? A Complete Explanation of the Election Process

To understand the impact of elections on the stock market, first, it’s essential to know what happens at each stage during the cycle of how often the US presidential election occurs.

Stage One: Primary Season (February to June of Election Year)

Primaries are divided into two types—initial primaries and caucuses. Democrats and Republicans each select their presidential candidates during this period. Primaries involve direct voting by party members, while caucuses are discussions and votes to select delegates for the national conventions. During this stage, market sentiment is often cautious, as candidate policy positions remain uncertain.

Stage Two: National Conventions (July to August of Election Year)

Both parties hold national conventions to officially nominate their presidential candidates and select vice-presidential running mates. This event often causes noticeable market volatility, as investors begin to adjust their strategies based on the candidates’ platforms.

Stage Three: General Election (October to November of Election Year)

Presidential candidates campaign nationwide to garner voter support. Voters in each state cast ballots for a president and vice president. During this period, market volatility usually peaks due to genuine uncertainty about the outcome.

Stage Four: Electoral College Vote

The US uses the Electoral College system, with 538 electoral votes. A candidate needs to secure more than half (270 votes) to win. Electoral votes are allocated based on each state’s congressional representation. The elected president and vice president are inaugurated in January of the following year.

The Real Impact of US Presidential Elections on the Stock Market

According to research by US bank analysts on market data since 1930, the impact of US presidential elections on the stock market follows a regular pattern.

One Year Before the Election: Market Enters Adjustment Phase

Historical data of the S&P 500 index shows that stock and bond markets tend to perform relatively weakly in the year prior to the presidential election. Investor sentiment becomes more cautious, risk appetite declines. Liquidity may be constrained, and volatility increases during this period.

Election Year Itself: Cautious Trading

During the election year, stock market returns generally lag behind non-election years. Uncertainty is the main limiting factor, and many institutional investors tend to temporarily avoid certain risk assets.

Post-Election: Different Policy Expectations

After the election results are announced, market reactions depend on the policy tendencies of the winner. Data shows that when a new party takes office, stocks tend to rise by about 5% on average. When the incumbent president is re-elected, stock returns are more optimistic, averaging 6.5%. This indicates that markets view policy continuity positively.

Political Affiliation Is Not the Key Variable

It’s worth noting that the political party of the president has a much smaller impact on the stock market than specific policies. Regardless of which party’s candidate wins, the long-term market performance often depends on policy implementation rather than political stance. This reflects an important principle: Markets dislike uncertainty but can adapt to any defined policy framework.

What Truly Moves the Stock Market Is Policy, Not Politics

During the election cycle, four key policy areas—fiscal, monetary, trade, and market regulation—have the most significant actual impact on the real economy and stock markets.

Tax policy adjustments directly affect corporate profit margins. Changes in import/export tariffs reshape global supply chain expectations. The Federal Reserve’s monetary policy stance influences interest rates and liquidity. The tightening or loosening of securities regulation frameworks alters investors’ risk appetite. These factors often lead to re-pricing of valuations in specific industries and asset classes.

How Should Investors Respond to Risks During the Election Cycle?

Adjust Your Mindset: Volatility Does Not Equal Crisis

Market fluctuations before and after elections are normal. Increased volatility does not necessarily mean a deteriorating investment outlook. Many of the best historical investment opportunities arise during overly pessimistic periods in election seasons.

Focus on Policies, Not Politicians

Smart investors should focus on potential policy changes rather than candidates’ personal traits or party affiliations. Analyzing possible shifts in policies related to taxes, trade, energy, and technology during election years can help you more accurately adjust your portfolio.

Maintain a Long-Term Perspective

Regardless of the election outcome, long-term economic fundamentals are the ultimate determinants of stock market direction. Short-term fluctuations during the election cycle create opportunities for investors with clear goals and risk tolerance. Developing a long-term investment plan and establishing appropriate risk control mechanisms are the best strategies to cope with election-year uncertainties.

Pay Attention to Industry Sensitivity

Different industries are affected to varying degrees by elections. Policy-sensitive sectors such as energy, healthcare, defense, and technology tend to be more volatile. Understanding how your holdings in these industries perform under different policy frameworks can help you better manage risks.