How We Evaluated the Impact of Elections on the Stock Market
To evaluate the impact of U.S. elections on the stock market, we studied the Dow Jones Industrial Average (DJIA). We reviewed its level at the beginning of October (before the elections held in November) and again at the end of March of the following year. This timing was chosen to assess the situation before the elections and when the new president is inaugurated (if elected) in January, after the new legislative session has begun, where new policies will largely be known.
Unified Control: Presidency and Congress Controlled by the Same Party
Periods of unified control by political parties have become less common in recent decades, so there are fewer reliable examples. In 2016, Republican candidate Donald Trump was elected President of the United States and enjoyed a Congress controlled by his Republican party. At the beginning of October 2016, the DJIA was around 18,250 points. It then rose by approximately 10% to over 20,000 points by the end of March 2017.
On the other hand, in the previous period of unified control, markets fell – in 2008, when Democrat Barack Obama was elected President and enjoyed support from a Congress also controlled by Democrats. In early October 2008, the DJIA was around 10,800 points, but by the end of March 2009, it had fallen by 26% to below 8,000 points.
However, it should be noted that 2008 was the peak of the subprime lending crisis and the beginning of the global financial crisis, so it is not clear whether the downward movement in the market was largely driven by politics or by the economy.
In the previous period of unified government – in 1992, when Democrat Bill Clinton was elected – the DJIA rose by about 5% from around 3,200 points in October 1992 to 3,450 points by the end of March 1993.
Democratic President, Republican-Controlled Congress
The last time a Democratic president was in the White House while the Congress was controlled by Republicans was in 2014, during President Obama’s second term. The DJIA was around 17,000 points in early October, then rose to over 18,000 points by the end of March 2015.
Before that, in 1996, during President Clinton’s second term, the DJIA was around 5,900 points in early October 1996 before the elections, but then rose to over 7,000 points by mid-March 1997 after the Republicans took control of Congress. (It then fell by 500 points to around 6,500 points by the end of the month.)
Based on this, it seems that the market also responds well to a Democratic president balanced by a Republican-controlled Congress.
Democratic President, Divided Congress
Before losing control of Congress to Republicans in 2014, the general elections (which include all congressional seats and the presidency) in 2012 showed that the Democratic president (Obama) faced a divided Congress. When that happened, stock markets also rose. In early October 2012, the DJIA was around 13,500 points, but it rose by approximately 7% to 14,500 points by the end of March 2013.
Obama also had a divided Congress after the elections in 2010, at which time the DJIA rose by around 14% – from about 10,800 points in October 2010 to over 12,300 points by the end of March of the following year.
Based on
To this historical information, it seems that the market reacts well to the Democratic president, even if Congress is divided.
Republican President, Congress Controlled by Democrats
When looking at what happens when Republicans are elected to the presidency, we find a similar pattern. As mentioned above, the Dow Jones Industrial Average rose by about 10% after Trump’s election in 2016.
However, markets have also responded well to Republican presidents even if Democrats control Congress. In 2006, in the middle of Republican President George W. Bush’s second term, the Dow Jones Industrial Average rose by about 6.5% from around 11,700 points in October 2006 to about 12,500 points by the end of March 2007
Source: https://www.investopedia.com/us-election-and-stock-market-6822056
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