Following Donald Trump’s re-election, you may be curious about its potential influence on stock markets and the implications for your investment strategy.

Data from JP Morgan reveals that immediately after November’s election, US equities significantly outperformed other regions. The Standard & Poor’s 500 (S&P 500), which tracks 500 of the largest companies listed on US stock exchanges, saw a 5.9% increase over the month, while the UK’s FTSE All-Share posted more modest gains of 2.5%.

In contrast, other global markets saw declines. The MSCI Europe ex-UK fell by 0.1%, while the TOPIX and MSCI Asia ex-Japan recorded losses of 0.5% and 3.3%, respectively. The MSCI Emerging Markets Index dropped by 3.6%. However, despite these setbacks, all major global markets maintained an overall gain in 2024.

The S&P 500 performed almost 1% better on average during an election year compared to the year after.

While these figures reveal the initial market response, it’s important to remember that such reactions are often short-lived and influenced by immediate sentiment rather than long-term trends.

Historically, markets have trended toward growth in the long term – regardless of who is in power in the US – and have recovered after dips caused by global events.

So, while keeping a cool head, read on to find out how the new presidency could affect your investment strategy – and broader financial plan.

The build-up to an election can cause market volatility and there may be slightly slower growth the following year

Election season often causes markets to fluctuate within a short period of time (known as volatility), especially when the outcome is too close to call. However, markets tend to stabilise once the results are confirmed.

For instance, the lead-up to the 2016 US election was marked by significant market volatility. Yet, once Trump’s victory was announced, the Guardian reported that US markets posted gains.

Interestingly, market growth may be slightly slower in the year following an election, compared to the year before, perhaps due to the uncertainty around policy details as the new administration settles in.

Forbes reports that the S&P 500 performed almost 1% better on average during an election year compared to the year after. But with average respective gains of 10.67% and 11.57%, the index yielded double-digit returns in both cases.

So, while the build-up to an election can cause volatility and there can be slightly slower growth in the following year, markets have typically been swift to recover, meaning losses were generally short-lived.

As most investment professionals will tell you, staying invested for the long term is usually the most appropriate course of action – even if you have doubts about market performance now that a new president has been elected.

Markets have generally performed well under both Republicans and Democrats

While there may be volatility in the build-up to an election and even for a period after the result is announced, markets have historically performed well with both Republicans and Democrats in power.

The graph below shows the growth of $1 invested in the S&P 500 from 1926 to 2019.

Source: Harvest

As you can see, the stock market has generally trended upward over the long term under both Democrat and Republican presidents. Though there have been dips, the market has delivered positive returns over long time horizons.

Indeed, since 1929, only four presidential terms have experienced negative returns for the S&P 500 on an annualised basis.

However, it’s important to remember that many factors influence market performance beyond the political stripes or policies of the US president.

For instance, major events like the 9/11 terrorist attacks and the 2008 financial crisis occurred during George W Bush’s presidency. Both had considerable ramifications for market performance and led to downturns.

The other two terms with negative returns were under J Edgar Hoover in 1929-1932, during the Great Depression, and Franklin D Roosevelt in 1937-1940, which saw the outbreak of the Second World War.

The crucial point to note is that the average annualised return on the S&P 500 for a president’s term is more than 10%. Despite dips, the market has delivered consistent long-term growth.

Global markets trend towards growth in the long term, regardless of world events

As you read earlier, markets outside of the US and the UK dipped slightly after the announcement of Trump’s victory.

However, global markets also trend towards growth in the long term and have historically continued to deliver after dips prompted by crises that go beyond which US political party is in power.

The graph below shows the growth of $1 on the MSCI World Index from 1970 to 2019 alongside the timeline of significant world events that have caused dips.

Source: Harvest

As you can see, even though events such as the subprime mortgage crisis, 9/11, and the Arab oil embargo caused considerable dips in the global market, it continues to trend upward over the long term.

So, the financial consequences of Trump’s re-election – whatever they may be – are unlikely to be lasting. Both US and global markets historically show resilience and a tendency to recover and grow over time.

The market reaction to the election result highlights the value of a diversified portfolio and a long-term approach to investing

Although Trump’s full economic agenda has yet to unfold, the market’s reaction to his election victory has been decisive.

The positive returns in the US and UK, contrasted with losses in other regions, highlight the importance of maintaining a well-diversified portfolio to spread risk and capture opportunities across different markets. Diversification can help cushion your holdings against regional fluctuations and ensure more stable investment returns.

Equally important is the value of investing over the long term. Market movements immediately following an election are often driven by investor sentiment and speculation. But a carefully considered, well-managed investment strategy focused on your life goals can help you navigate uncertainty and benefit from long-term market growth – regardless of who is in power.

Of course, it is important to remember that past performance is not a reliable indicator of future performance. The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested

Get in touch

An Amber River financial planner can help you develop a plan that supports your goals. They can ensure your long-term investment plans remain on course, with a well-diversified portfolio designed to protect you from market fluctuations, whether they’re driven by political change or other global events.

To speak to an Amber River financial planner call us on 0800 915 0000, or or use our contact form here to set up an initial appointment.

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

Investments Investment strategy Market trends