With the US elections around the corner, many investors are wondering how the outcome might impact the stock market. History shows that US large-cap stocks have generally performed well in election years—no matter who wins.
Election years often make investors uneasy, but the stock market tends to shrug off political risk. In fact, the Dow Jones Industrial Average advanced by 6.6% on average in the second half of election years from 1900 through 2012. During that time, there was plenty of instability and uncertainty for the market to digest, including two World Wars, the Great Depression, high-inflation and low-inflation periods, the bursting of the tech bubble and the housing bubble, and the global financial crisis. And of course, there have been multiple changes in the political party of the president and Congress over the last century.
With this in mind, it’s far from certain that the outcome of this year’s disruptive election campaign will derail equity markets. So far, US large-cap stocks don’t seem especially unnerved by the campaign—they’ve advanced by 7.2% this year through September 30. While this could change, market participants have historically tended to train their sights on fundamental factors, rather than election outcomes, to guide their decision making. This means focusing on factors like interest rates, inflation and economic growth.
In our view, the best way to navigate today’s political uncertainty is through active and thoughtful portfolio construction, driven by high-conviction research insights about long-term company fundamentals—and with an eye to protecting from downside risk.
The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams.