A recent study by Citi examined the stock market impact of 134 elections held in 17 different countries, excluding periods of volatile global markets such as the global financial crisis and the COVID-19 pandemic. One of the main findings of the study is that elections generally do not have a significant impact on equity markets.
In developed markets, equities tend to experience some volatility around election day but generally maintain a mild upward trend into and out of elections. In the US specifically, equity markets usually rise into elections and then move higher afterward.
Cyclical sectors also tend to perform well post-election. While volatility increases around election time, it typically fades later on.
Another interesting finding is that while markets prefer continuity, they do adjust to “change” elections where policies shift, but with a lag of around four to five months. Markets tend to favor right-leaning parties, but after five months or so, they adjust to left-leaning parties, which actually perform better after six months.
In emerging markets, equities tend to fall into elections and then rise afterward. However, the markets with elections this year have mixed results.
Indonesia, Taiwan, and South Africa tend to see markets rise six months after election day, while India and Mexico tend to trade somewhat lower. The study also found that emerging markets tend to prefer change over continuity candidates.
Overall, the S&P 500 has gained 1% this year and finished at a record high on Friday.
