US presidential elections have only limited impact on US markets, according to new analysis1 by Source, one of the largest providers of Exchange Traded Funds (ETFs) in Europe.
On average, bonds, equities and the US dollar have remained in a tight range in the two months before the last 11 elections and all of them gained in the six months after (around 4% total return for treasuries and equities).
Even in the three elections where the candidates were within five percentage points of each other in the polls beforehand – 2000, 2008 and 2012 – there was still little impact on markets despite the heightened uncertainty.
Paul Jackson, Head of Research at Source, commented: “Equity bear markets in 2000 and 2008 and the resulting flight to safety clouds the analysis to some degree but generally, equities tended to be more volatile around the election date on average while the dollar remained in a tight range.
“Treasuries were the best performers and their total returns were better than the all-period average. This suggests some risk aversion among investors. However, most of that risk aversion was based on the two periods that coincided with equity bear markets. The fact that in 2012, equities did not weaken before and performed well after the election implies that this kind of political uncertainty does not necessarily change prevailing trends in markets.”
Four out of five of the last five elections, including the current one, have had no clear leaders two months before the election date.
Paul Jackson added: “We believe that this is because increasing partisanship has polarised opinions. The policy preferences of voters, especially since the global financial crisis, seem to have become misaligned with traditional party ideologies.
“These trends have allowed a populist to become a presidential candidate, so this time the choice is not between two sides of a centrist coin. Most US assets have performed strongly leading up to this year’s election and we are therefore comfortable moderating our risk exposure and remain underweight US equities and treasuries.”
Source UK Services Limited is authorised and regulated by the Financial Conduct Authority in the UK.