Do U.S. Election Results Influence the Stock Market?

Elections may influence stock market performance. However, the specific political party in control of the executive and legislative branches might not matter significantly. This may be surprising given the differences between how parties approach fiscal policy.

To find out what impact elections have on U.S. equities markets, Investopedia looked at elections over the years to see what patterns could be identified. Specifically, we examined the link between a president’s party affiliation and market performance. We also looked at what happens in the market when the U.S. president enjoys the full support of Congress by having his party also control both the House of Representatives and the Senate; and what happens when one chamber is controlled by the president’s party while the other is not, also known as a split Congress.

In short, our findings seem to suggest that the party running the country makes no clear difference for the stock markets.

How We Assessed Elections’ Market Impact

To assess the impact of U.S. elections, we looked at the Dow Jones Industrial Average (DJIA) as a proxy for the general stock market. We monitored its level at the start of October—one month prior to a November election—and again at the end of March the following year. This time span was chosen for a few reasons. For one, it begins while election outcomes are still relatively uncertain. In addition, it concludes after a president has been sworn in (if applicable) and after the new congressional session has started, at which point political priorities have become more evident.

We looked to see what connection there is between the political party of a president and market performance, as well as whether it makes a difference if Congress is split or if it’s completely controlled by one party.

First, we found political control in recent years has become more divided. In the 62 congressional sessions since 1900, just over half (35) represented unified governments, meaning that the same party controlled the White House, the U.S. Senate, and the U.S. House of Representatives. However, since 1980, only seven of the 22 sessions of Congress have been a unified government.

Unified Control: Presidency and Congress Held by Same Party

Periods of unified party control have become less common in recent decades, so there are fewer examples on which to draw.

Joe Biden was elected president in 2020. Upon taking office in 2021, his party, the Democrats, controlled Congress. In early October 2020, the Dow Jones was at around 28,150. By the end of March 2021, the Dow Jones had climbed to over 33,000, a more than 17% increase.

In 2016, Republican candidate Donald Trump was elected president and enjoyed a Congress controlled by his Republican Party when he took office in 2017. In early October 2016, a little more than one month before the election, the DJIA was at around 18,250. It then climbed over 12% to reach more than 20,500 by the end of March 2017.

Conversely, on the prior occasion that there was unified control, the market fell—in 2008, when Democrat Barack Obama was elected president and similarly enjoyed the support of a Congress also controlled by Democrats. In early October 2008, the DJIA was around 10,800, but by the end of March 2009, it had fallen about 30% to near 7,500.

However, it should be noted that 2008 and 2009 saw the culmination of the subprime mortgage driven financial crisis, known as the Great Recession in the United States. The situation in the United States also sparked a global financial crisis. March 6, 2009 was the stock market’s absolute low point. This extraordinary economic situation is the apparent cause of the stock market movement between October 2008 and March 2009 rather than the election result.

In the previous presidential election, George W. Bush was reelected president in 2004. That election saw his Republican party control both chambers of Congress as well. In early October 2004, the Dow Jones sat at around 10,200. By the end of March 2005, little had changed, and the Dow closed at around 10,500, an increase of nearly 3%.

In the election of 1992, Democrat Bill Clinton was elected president, and voters also gave control of Congress to his party creating a unified government. The DJIA climbed over 7% from around 3,200 in October 1992 to 3,450 by the end of March 1993.

Democratic President, Congress Controlled by Republicans

The last time a Democratic president was in the White House while Congress was completely controlled by Republicans was in 2014, in the middle of President Obama’s second term. The DJIA was at around 16,800 points in early October, and then climbed to just shy of 18,000 by the end of March 2015, an increase of over 7%.

A similar increase took place in 1994, in the middle of President Clinton’s first term in office. The DJIA was at around 3,800 in early October 1994 before the midterm election, but subsequently climbed over 9% to 4,150 by late March 1995 after Republicans took control of both houses of Congress.

Democratic President, Split Congress

In the midterm elections of 2022, Democrat President Joe Biden’s party lost control of the House of Representatives, creating divided government. The DJIA went from roughly 29,500 in early October 2022 to about 32,800 by the end of March 2023. This is an increase of over 11%.

The election of 2012 delivered a democratic president with the reelection of Barrack Obama for second term, and a split Congress with Republicans controlling the House of Representatives and Democrats having a majority in the Senate. In this period, the stock markets climbed. In early October 2012, the DJIA was around 13,500, and it then climbed around 7% to 14,500 by the end of March 2013.

There was also a split Congress following the 2010 elections, at which time the DJIA climbed nearly 14%—from around 10,800 in October 2010 to just over 12,300 by the end of March the following year.

Republican President, Congress Controlled by Democrats

Looking at what happens when Republicans are elected president, we find a similar pattern. As mentioned above, the DJIA climbed about 10% after Trump was elected in 2016.

However, markets have also reacted well to the election of Republican presidents even while Democrats maintained control of Congress. In 2006, in the middle of Republican President George W. Bush’s second term, the DJIA climbed about 6.5% from around 11,700 in October 2006 to around 12,500 by the end of March 2007 after Democrats took control of Congress.

Similarly, in 1990, when Republican George H.W. Bush was elected president but Congress became controlled by Democrats, the DJIA climbed about 16% from around 2,500 to about 2,900 in March 1991.

Republican President, Split Congress

The most recent example of a Republican president presiding over a split Congress was in 2018, in the middle of President Trump’s only term. Around this time, DJIA fell around 7% from around 27,000 to around 25,000.

To find another example, we have to look back to 1984, at the start of Republican President Ronald Reagan’s second term in office. At that time, Democrats controlled the House of Representatives while Republicans controlled the Senate. In October 1984 before the election, the DJIA was at around 1,100, and it climbed around 14% to 1,260 by March 1985.

The Bottom Line

While it seems that the often drastically different fiscal policies of the two main U.S. political parties should influence markets, data suggests that the party affiliation of the president has little significant effect on performance over time.

Further, it seems that even when Congress is controlled by the opposition party (which makes it more difficult for a president to pursue an agenda), markets tend to react in ways similar to when there is a unified government. The data that we examined shows that election results may influence market performance, but that the specific parties in control of executive and legislative branches may not be particularly significant.