What decades of data say about elections and markets

Every election cycle feels like it could be a turning point for financial markets.

This year, that feeling is amplified. The upcoming midterms are drawing a lot of attention, and a lot of money. It’s not just campaign spending; prediction markets, a relative newcomer to the election scene, are now drawing more than $20 billion in monthly trading, much of which is directed toward political bets.  

Predicting election winners is now big business

Source: Polymarket, through May 28, 2026.

Some people may think they can use the “wisdom of the markets” to call the election and position their portfolios accordingly. But history tells a different story, at least when it comes to financial markets. While elections matter, they are rarely what determines long-term investment outcomes.

POLICY MATTERS, PREDICTIONS DON’T

There’s no question that real policy issues are at stake in 2026. The outcomes of debates around taxes, trade, regulation, immigration and government spending all matter for businesses, households and the economy. These factors can influence corporate profits, consumer behavior and economic growth over time.

But markets don’t respond to policy, or the outcomes of those policies, in isolation. They reflect a much broader set of forces, like innovation, productivity, demographics, interest rates, global events and investor psychology. That’s why even major elections rarely produce a clear or consistent market outcome on their own.

And in highly emotional election cycles like this one, the bigger risk for investors isn’t how policies might change as a result; it’s the temptation to react by trying to time the market around it.

WHAT THE DATA ACTUALLY SHOWS

If you step back and look at the data, the message is remarkably consistent.

Since 1948, the stock market has delivered positive long-term returns under nearly every combination of political control – whether Democrats or Republicans held the presidency, Congress or both. That’s true even during times of split political control, when major policy changes were less likely to pass. (Unlike drivers, markets like gridlock – when change is slow or difficult, it removes a lot of uncertainty because things can be counted on to continue as they are.)

The U.S. stock market has usually gone up no matter who’s in charge

U.S. large-cap stocks represented by the Ibbotson SBBI U.S. Large Stock Total Return Index through January 1, 2026. Sources: IA SBBI and Congressional Library.

What markets tend to value most is not which party wins, but whether businesses and consumers can expect a relatively stable and predictable environment.

And importantly, investors who step out of the market based on political concerns often face a much harder challenge: deciding when to get back in. Missing even a handful of the market’s strongest days can have a major impact on long-term results.

VOLATILITY AROUND ELECTIONS IS NORMAL

Election years can feel uniquely uncomfortable for investors, and there’s a reason for that – human psychology. Elections tap into uncertainty, personal identity and concerns about the future, which can make financial decisions feel more consequential and urgent. It’s not rare: 73% of Americans reported feeling anxious about the 2024 election.

And individual investors aren’t the only ones on edge; professional traders get antsy too. Historically, volatility tends to rise as the election approaches, particularly late in the summer and into early fall when candidates are finalized and the news cycle intensifies. It often peaks in the weeks leading up to Election Day, when uncertainty is highest.

History says we can expect volatility to keep increasing for the next few months

Volatility represented by the CBOE VIX. “Average volatility in midterm years” reflects midterm years and “long-term average volatility level” is the average since VIX began in 1990. Source: CBOE.

But that spike in volatility is typically short-lived. Once the outcome is known, markets tend to stabilize.

That pattern highlights two common traps. First, some people may be inclined to delay investing new money until after the elections, in spite of the results having little long-term impact on markets. Behavioral scientists refer to the tendency to postpone decisions until uncertainty is resolved as the “disjunction effect,” and it’s irrational when the information you’re waiting for isn’t important and won’t change your actions. We view waiting until after an election to invest as a form of market timing that can hinder your ability to reach your investment goals.

Second, volatility can make investors question the market’s strength and consider getting out. But historically, those who move to cash during turbulent moments can miss the recovery that follows.

WHERE POLICY COULD MATTER OVER TIME

Policy decisions can and do shape the investment landscape over time, and there are some key issues in the upcoming election that could impact economic growth, inflation, corporate profits and market leadership in the years to come:

• Taxes: Tax policy has already shifted meaningfully in recent years, and with large fiscal deficits and changing political priorities, it could change again. Future debates around corporate tax rates, capital gains taxes and the extension or expiration of existing provisions could affect business investment decisions, hiring and even consumer behavior.
• Trade and supply chains: Tariffs are likely here to stay, regardless of which party is in power. The old era of ever-expanding globalization appears to be behind us, with supply chains continuing to evolve in response to policy and geopolitical pressures. These changes can create short-term volatility, but they also tend to open up longer-term opportunities across different sectors and regions.
• Immigration and labor markets: Workforce growth remains one of the most important long-term questions for the U.S. economy. As we’ve noted elsewhere, the labor market is shifting, but it is not collapsing. Policies that affect immigration and workforce participation could have lasting effects on wage growth, productivity and inflation.
• Regulation: From artificial intelligence to banking oversight to environmental policy, regulatory decisions can have very different impacts depending on the industry. Both parties – and Americans more broadly – are trying to keep pace with rapid technological and cultural change. While the specific direction of policy remains uncertain, markets have shown an ability to adapt and remain resilient under a wide range of regulatory environments.
• Federal spending and deficits: Government spending priorities, including infrastructure, defense and industrial policy, can influence economic activity and which sectors lead the market. We continue to monitor U.S. fiscal health and the long-term role of the dollar closely. That said, potential challenges to U.S. financial dominance are likely to develop gradually and are unlikely to hinge on a single policy decision or election outcome.
• Federal Reserve independence and interest rate policy: The Federal Reserve operates independently, and its decisions are not tied directly to election outcomes. That said, interest rate policy remains one of the most important forces shaping the economy. Under new leadership and in an environment of persistent inflation and growth uncertainty, Fed decisions are likely to remain both highly consequential and closely watched.

These forces matter, but they tend to play out gradually, not immediately after an election. And they often create both winners and losers, reinforcing the value of diversification. We consider new information and policies as part of the ever-evolving set of future expectations that drive our investment portfolio mixes, and potential changes are considered strategically and thoughtfully, not in a reactionary or panicked way.

THE BIGGER RISK: EMOTIONAL INVESTING

So what should you actually do with all of this?

First, recognize that election anxiety is real and understandable. Beyond strong feelings about the country’s political direction, you may also have concerns about how the outcome will impact your retirement security and your family’s day-to-day financial life and decisions.

And elections are important; we’re not saying you can or should ignore politics altogether. Elections can influence taxes, inflation, the job market, interest rates and more. While you can’t control any of these, you can, in many cases, react to them (through smart financial planning strategies, not by changing your portfolio or trying to time the market).

But trying to make decisions by forecasting what you think might happen could be a losing game. At Edelman Financial Engines, we focus on preparation rather than prediction. That means building a plan and a diversified portfolio designed to help navigate many different environments, not just the one that feels most likely or most concerning right now. Remember that your ability to reach your personal financial goals is not dependent on a specific political outcome.

Uncertainty is usually temporary. The cost of abandoning a long-term plan can be permanent. Over time, it’s important to maintain a disciplined, diversified approach.