How often is the U.S. presidential election held? Understanding the election cycle and its hidden connection to the stock market

Four-year cycles, a globally watched political event—the U.S. presidential election—not only influence U.S. politics but also have a profound impact on global capital markets. Many investors feel both anticipation and anxiety about this event. How should we understand the relationship between election years and the stock market?

Basic Knowledge of the U.S. Presidential Election

The U.S. presidential election is held every four years, and this fixed cycle has become an important reference in the global political schedule. The election process involves complex procedures, typically divided into four stages.

Detailed Explanation of the Election Process

Pre-election phase (from February to June of the election year)

During this period, the Democratic and Republican parties conduct primaries and caucuses to select their respective presidential candidates. Primaries involve direct voting by party members to determine their preferred candidate, while caucuses are discussions and votes to select delegates for the national conventions. This stage is when political positions and policy stances gradually become clearer.

National Conventions (July to August)

Both parties hold their national conventions in summer to officially nominate their presidential candidates. The nominated candidates then select their vice presidential running mates, forming a ticket.

General Election (Fall)

Candidates campaign intensely across all states, striving to garner broad public support. Voters in each state participate in voting to elect the president and vice president.

Electoral College Vote (November)

The U.S. employs an Electoral College system rather than direct popular vote. There are a total of 538 electoral votes nationwide; the candidate who wins more than 270 votes becomes president. The elected president and vice president are inaugurated in January of the following year.

How Does the U.S. Election Affect the Stock Market?

The quadrennial U.S. presidential election significantly influences economic policies, legal frameworks, and international relations, thereby affecting the direction of capital markets. The historical research team at U.S. banks has conducted in-depth analyses of market data from 1930 to the present.

Stock Market Performance Patterns During Election Cycles

Stock markets tend to perform weaker in the year before the election

According to historical data of the S&P 500 index, stock and bond markets often underperform in the year prior to a presidential election. During this period, investor sentiment tends to be cautious, with concerns over policy uncertainties, leading to decreased market participation. During the election itself, stock market gains are usually moderate. However, after the election concludes, markets tend to react to new government policy signals, often resulting in moderate growth over the following year, with bond performance remaining relatively stable.

The relationship between the winning party and stock market gains is not significant

Interestingly, market analysis shows that regardless of which party’s candidate wins, the average stock market increase is about 5%. When the incumbent president is re-elected, stock returns are slightly higher, reaching around 6.5%. This indicates that the political camp itself is not the core factor determining market trends. Investors care more about policy stability because “markets dislike uncertainty.” As long as the policy framework remains relatively clear, markets generally do not experience extreme volatility, regardless of which party is in power.

Policy adjustments are the true drivers of market movement

Compared to the candidates’ identities, the policy changes implemented by the new government in key areas such as fiscal, monetary, market regulation, and trade are what truly impact the stock market. Changes in these four areas directly relate to the real economy, influencing corporate earnings expectations and market valuations.

How Should Investors Respond to Market Volatility Caused by the Election?

During election years, investors often feel increased market uncertainty, but this does not mean they should panic and withdraw. Market fluctuations are normal even without election-related disturbances, and increased volatility can sometimes present investment opportunities, especially in environments with solid economic fundamentals.

Focus on policies rather than politics

Wise investors should concentrate on specific economic policy orientations rather than get lost in the noise of candidates and party conflicts. Paying attention to the new government’s tendencies in taxation, interest rates, regulation, and other areas is more important than who wins the presidency.

Maintain a long-term investment perspective

Although election years may trigger short-term volatility, long-term investors should focus on their overall portfolio strategy. Conduct macroeconomic assessments, adjust asset allocations according to policy changes, and maintain appropriate risk control mechanisms to cope with market uncertainties.

Understand industry sensitivities

Closely monitor which industries and sectors are most affected by election-related policies, such as energy, healthcare, and technology regulation. This helps in making more precise investment decisions. Different ruling parties may have varying impacts on different industries, so doing homework in advance can be beneficial.