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Note: Our political commentary is intentionally non-partisan. Fisher Investments Canada doesn’t favour any political party or any candidate and assesses political developments solely for their potential economic and market impact.

This is set to be a landmark year for elections as roughly half the world’s population heads to the polls. Predictably, media headlines are alight with political pundit commentary, bold campaign promises and warnings of dire consequences if the “wrong” party wins. Even a cursory review of political headlines would be enough to worry most investors about what the future holds for markets and the global economy. However, those willing to look beyond partisan rhetoric may find some surprising truths about how elections can affect equities.

Contrary to popular belief, Fisher Investments Canada believes the 2024 U.S. presidential election’s impact on equities should be positive – something largely underappreciated by investors. In this article, we’ll examine historical U.S. election-year equity returns and why neither U.S. political party is key to long-term equity growth. We’ll also discuss some other key elections around the world and how the proliferation of global gridlock could provide tailwinds for markets this year.

U.S. election years tend to be strong for U.S. and global equities, Fisher Investments Canada reviews

In election years, dramatic rhetoric can dominate the headlines, spark volatility and divide the investing community. Though many investors fret about U.S. presidential elections, equities have historically performed well regardless of the victor. In fact, since 1928, U.S. equities have posted positive presidential election-year returns more than 83.3 per cent of the time with an average return of 11.4 per cent.1

As Exhibit 1 shows, election years usually have more muted returns on average in the first half of the year and stronger returns in the second. In Fisher Investments Canada’s review, this is likely due to falling uncertainty as investors increasingly accept the likely outcome. Campaign theatrics can dominate early, often spooking investors and triggering outsized volatility. But as election day draws near, the expected victor’s policy stance and likelihood of delivering major legislation becomes clearer.

Exhibit 1: Average S&P 500 Returns During Election Years

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Source: Global Financial Data, as of 27/12/2023. S&P 500 Price Index, 31/12/1930 – 31/12/2020.Fisher Investments Canada

While this graph only looks at S&P 500 data, Fisher Investments Canada research has shown global equity markets follow a similar path given the importance of the U.S. market to the global economy. U.S. and international equities aren’t perfectly correlated, but they move together more often than not.2 Good news for the world’s largest economy and equity market is often good news for the rest of the developed world.

Some might think Exhibit 1 portrays Democratic presidents as inherently better for equities in election years. But it’s important to look closer before drawing conclusions. Exhibit 1 solely illustrates election-year returns – not performance over the long term where, as Fisher Investments Canada’s demonstrates, equities favour neither party. Additionally, six of eight negative election years occurred under Republican presidents. Five of those negative years occurred during or after recessions, which are a recipe for a party switch and a pointed reminder that politics are just one driver of returns.

Voters play favourites – equities don’t

Setting political bias aside isn’t easy. However, it may help to learn election-year returns only offer one piece of the puzzle. In the long term, equities perform just fine regardless of which party holds office, and U.S. elections demonstrate this well, in Fisher Investments Canada’s review. Exhibit 2 shows U.S. equities’ 100-year climb. Over this period, equities have risen an average of 15.4 per cent per year under Democratic presidents and 9.0 per cent under Republicans, which is nicely positive for both and proving no one party has a monopoly on good ideas.

Exhibit 2: Hypothetical Growth of $1 Invested in the S&P 500, January 1925 – December 2023

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Global Financial Data, as of 11/01/2024. Growth of $1 invested in the S&P 500 Total Return Index on 31/12/1924. Data is monthly from 31/12/1924 – 31/12/1987 and daily from 01/01/1988 – 31/12/2023.Fisher Investments Canada

The same holds true in other countries. For example, in the United Kingdom, which comprises roughly 4 per cent of developed-world equities,3 U.K. equities’ average annual return has since 1970 been 12.1 per cent under Conservative governments and 12.7 per cent under Labour.4 Whichever election you follow, the likelihood is that stocks don’t mind who wins. Rather, stocks move based on a culmination of economic, political and sentiment drivers – and are namely driven by surprise. So, while investors may personally fret about results come election day, the impact on portfolios should be one less thing to worry about.

Fisher Investments Canada reviews political tailwinds’ extent outside the U.S.

While falling uncertainty as elections near is one facet of political tailwinds, it is not the only one. Political gridlock can be helpful, too. Although frustrating to voters and citizens, gridlock typically helps equities by decreasing legislative risk – allowing businesses to confidently plan without the threat of potentially restrictive legislation. Fisher Investments Canada’s reviews show that gridlock appears in different forms. In the U.S., for example, there is currently interparty gridlock. With Republicans in control of the House of Representatives and Democrats in control of the Senate and the presidency, there’s a very low chance major legislation will get passed, particularly in an election year, when politicians are busy campaigning. Outside the U.S., gridlock can look a little different.

Fisher Investments Canada considers Spain and Holland, which voted in 2023. Both returned hung Parliaments. Spain’s incumbent Prime Minister, Pedro Sánchez, eventually required support from several other parties, including the Catalan separatists, to stay in power. Meanwhile, Geert Wilders’ Party for Freedom was Holland’s top vote-getter, but it only won 37 of 150 seats, splitting the rest among 14 parties. Coalition talks are crawling. For Holland, a multiparty coalition is all but inevitable, and so too is gridlock for both countries.

Looking ahead, national votes are scheduled in more than 50 nations this year. Returning to the example of the U.K. once again, the country’s general election must be held no later than Jan. 28, 2025. Prime Minister Rishi Sunak hopes tax cuts can improve paycheques and the economy enough to sway voters. However, some Conservative MPs find themselves besieged by the up-and-coming Reform UK party. Other politicians are reacting to a revived Labour Party under Keir Starmer, which has shed much of the reputational damage left by previous party leader James Corbyn. While the outcome is far from certain, neither of the major parties are likely to form a government that won’t have a degree of infighting.

In Fisher Investments Canada’s review, gridlock is an important addition to falling investor uncertainty, extending political tailwinds globally. As country after country heads to the polls this year, each has the opportunity to create or deepen political gridlock. That’s good news for equities, and good news for investors.

Election years are a tailwind for equities

Fisher Investments Canada believes that, while election years can be volatile, emotion can blind investors to the fundamental forces driving equities: falling uncertainty and political gridlock. Together, they provide powerful tailwinds that drive election-year returns, although campaign rhetoric can rattle sentiment along the way. So, the next time you browse political headlines, it may help to remember that noise often signals good things ahead – ample reason to stay invested.

Investing in financial markets involves the risk of loss and there is no guarantee that all or any capital invested will be repaid. Past performance is no guarantee of future returns. The value of investments and the income from them will fluctuate with world financial markets and international currency exchange rates. This document constitutes the general views of Fisher Investments Canada and should not be regarded as personalized investment or tax advice or as a representation of its performance or that of its clients. No assurances are made that Fisher Investments Canada will continue to hold these views, which may change at any time based on new information, analysis or reconsideration. In addition, no assurances are made regarding the accuracy of any forecast made herein. Not all past forecasts have been, nor future forecasts will be, as accurate as any contained herein.

Fisher Investments Management, LLC does business under this name in Ontario and Newfoundland & Labrador. In all other provinces, Fisher Asset Management, LLC does business as Fisher Investments Canada and as Fisher Investments.

1 Source: Global Financial Data, as of 02/01/2024. The S&P 500 Total Return Index is based upon GFD calculations of total returns before 1971. These are estimates by GFD to calculate the values of the S&P Composite before 1971 and are not official values. GFD used data from the Cowles Commission and from S&P itself to calculate total returns for the S&P Composite using the S&P Composite Price Index and dividend yields through 1970, official monthly numbers from 1971 to 1987 and official daily data from 1988 on.

2 Source: FactSet and Global Financial Data, as of 14/02/2024. MSCI EAFE and S&P 500 Total Return Indices, monthly, 31/12/1969 - 31/01/2024. Presented in U.S. dollars.

3 Source: FactSet. The portfolio above reflects the MSCI World Index as of 31/12/2023. The MSCI World Index measures the performance of selected stocks in 23 developed countries.

4 Source: FactSet, as of 02/01/2024; MSCI United Kingdom Total Return Index, monthly readings from 31/12/1969 – 31/12/2023. Presented in pounds.

Advertising feature produced by Fisher Investments Canada. The Globe’s editorial department was not involved.

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