Making Sense of the Stock Market After the Election

Estimated reading time: 3 minutes

It’s always interesting to see how the stock market responds to a major news event. And this week is no exception. President Donald Trump won the election and, on Wednesday, the market went up – bigly. It seemed to unequivocally endorse the result. Or did it?

Historically, the market has shown no clear performance difference whether Republicans or Democrats are in control of the White House. In addition, “presidential election cycle theory” states that the first two years of a presidential term tend to coincide with weaker stock market performance, as the new administration focuses on fulfilling campaign promises. 

Most corporations (and investors) see elections differently than citizens. While many of us base our votes on a variety of issues, corporations tend to be much more single-minded: They care mostly about regulations – and whether an administration will add and enforce them, or eliminate and relax them. 

Of course, macroeconomic factors, including assumptions about future policy, drive the stock market; no one person, even a President, ever has complete control. 

So what?

Those of us investing for the long-term have the luxury of a distant time horizon. Market movements driven by the news – even big news like a presidential election – aren’t particularly significant over years or decades. Most investors can safely shrug off short-term volatility, whether the market goes up or down. 

What’s most important is staying true to your strategy and remembering that the stock market has generally gone up. 

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