Does Politics Affect the Stock Market? Less Than You Think

Election season does something funny to investors.

When your party is running things, the economy looks pretty good. When the other side is in charge, it starts to look like trouble. The economy usually doesn't change overnight. The people in charge do.

Today is Election Day for the 2026 midterms,⁶ and by tomorrow morning plenty of investors will be wondering what the results mean for their money. So it's a good time to look at what history actually says about politics and your portfolio. The short version: it matters a lot less than the headlines suggest, and letting it drive investment decisions has been expensive.

How you see the economy may depend on who won

Pew Research Center has been asking Americans to rate the economy for years, and the answers line up closely with politics.

In a survey that wrapped up in early September 2024, 41% of Democrats rated economic conditions as excellent or good. Only 10% of Republicans felt that way. About a year later, in late September 2025, the two groups had traded places. Now 44% of Republicans said excellent or good, and just 10% of Democrats agreed.¹

Here's the part that gets overlooked. Across all Americans, the share with a positive view barely moved, going from 25% to 26%.¹ The country as a whole didn't feel much different. Each side just swapped seats.

The stock market didn't take sides

If either group's mood had been a good guide for investing, you'd expect at least one of those years to be rough for stocks.

That's not what happened. Including dividends, the S&P 500 returned 24.9% in 2024 and 17.8% in 2025.²

Someone who stepped away from stocks because they didn't like how things looked in 2024 would have missed a strong year. So would someone who did the same thing in 2025.

J.P. Morgan sees the same pattern over longer stretches. Stock returns during both the Biden administration and the second Trump administration have comfortably beaten long-term averages, which J.P. Morgan credits to the strength of American companies, healthy consumers, and technological innovation.⁴ We covered more of the presidential history in Election Year Worries? Why Staying Invested Is the Best Move For Your Money.

What if you only invested when your party was in charge?

First Trust ran this test using the S&P 500 going back to 1949. It compared three hypothetical investors who each started with $10,000:³

Source: First Trust, Standard and Poor's. S&P 500 Index, quarterly data from Q1 1949 through Q1 2024. Hypothetical illustration only, not indicative of any actual investment.³

Before anyone takes a victory lap over the first two rows, look at the third one. The gap between the two partisan investors is small compared with the gap between either of them and the investor who simply ignored politics.

Red vs. blue: it depends on who's counting

You've probably seen a headline claiming stocks do better under one party. The trouble is that the data can be sliced a lot of different ways.

Take the years when one party controlled the White House and both chambers of Congress. Measuring from 1937 through 2025, J.P. Morgan found the S&P 500 averaged 16.3% a year under unified Republican control, compared with 9.4% under a Republican president with a divided Congress.⁴ Measuring from 1949 through 2023, First Trust found a Republican sweep averaged 10.7% a year, among the lowest of any combination it looked at.³

Two well-known research firms, two different time periods, two very different stories.

Both firms add their own caution. First Trust noted that its best-performing combination, a Democratic president with a Republican Congress, may simply reflect how few years that setup has happened.³ J.P. Morgan says numbers like these tell investors very little about why markets did what they did, or what they'll do next.⁴

People really do invest based on politics

This isn't just a theory. A team of researchers from MIT studied the portfolios of millions of households around the 2016 presidential election, a result most people didn't see coming.

After the election, likely Republicans moved more of their money into stocks. Likely Democrats moved toward bonds and cash. Those shifts played out over the six to nine months that followed.⁵

A few details from the study are worth knowing:

• Most people didn't change a thing. The effect came mainly from a small group of investors making big moves.⁵
• Wealthier and older investors reacted more. The researchers noted these investors tend to pay closer attention to their accounts.⁵
• Investors who delegated reacted less. Households with more of their money in target date funds or accounts managed by an advisor moved less in response to the election.⁵

For context, the S&P 500 returned 21.6% in 2017, including dividends.²

This isn't a one-party habit, either. In some of their tests, the researchers found a similar but much weaker pattern with the roles reversed around the 2012 election.⁵

That second point is worth noting if you're getting close to retirement. In this study, it was the older and wealthier investors who were more likely to let an election move their money.

Where politics can matter

None of this means Washington never matters. Policy can move specific industries. From just before the 2016 election through the end of that year, financials, energy, and industrials were among the stronger sectors, while utilities, health care, and real estate were among the weaker ones.⁵

Tax law matters too. Changes to tax brackets, deductions, and estate rules can make a real difference in what you keep.

Those things are worth planning around. They're just a different question than whether you should be invested at all.

What actually drives the market over time

If politics isn't the main driver, what is?

J.P. Morgan points to Federal Reserve policy, government spending and tax policy, economic growth, the job market, company profits, and valuations as much better indicators of future returns than which party is in power.⁴ First Trust makes a similar case. Over time, the market grows because companies keep innovating and growing their profits, and businesses tend to find ways to adapt to whatever rules come out of Washington.³

Presidents and Congress can influence some of those things. They don't control them.

What this means for your plan

Vote your views. Invest your plan. An election is the right place for strong political opinions. A long-term portfolio isn't. J.P. Morgan calls this a cardinal rule for investors: "Don't let how you feel about politics overrule how you think about investing."⁴

Be careful with "this time is different." Every election feels like the most important one ever, and some of them may be. Since 1949, the market has posted positive average returns under every mix of party control in Washington.³

Match your money to your timeline. Money you'll need in the next few years shouldn't depend on what stocks do in any one year, election or not. We wrote more about that in What to Do With Extra Cash Right Now.

Plan around policy, not party. If a new law changes your taxes, your estate plan, or a business you own, adjust for that specific change. That's very different from moving your whole portfolio because of who won.

Have a process before you need one. Decisions made the morning after an election tend to be emotional ones, and tomorrow morning will be no exception. If the headlines start to get to you, Emotional Investing Can Be Expensive is worth a few minutes.

Quick answers

Does the president affect the stock market? Some, but much less than most people think. Interest rates, economic growth, and company profits have historically mattered more.⁴ The S&P 500 has posted strong returns under presidents of both parties, including 24.9% in 2024 and 17.8% in 2025.²

Do stocks do better under Democrats or Republicans? It depends on the time period and how you measure it. Two well-known firms looked at one-party control of Washington, using different time periods, and reached very different conclusions.³ ⁴ A hypothetical investor who ignored politics entirely did far better than one who only invested under either party.³

Should I sell stocks before an election? History doesn't support it. Moving in and out based on politics means being right twice, once getting out and once getting back in. Research on the 2016 election found the investors who made big political moves were a small group, and the S&P 500 went on to return 21.6% in 2017.² ⁵

The bottom line

It's completely normal to care about who wins today. Just keep that feeling at the ballot box. Over the long run, the market has tended to reward people who stayed invested through administrations they liked and ones they didn't.

Sources

1. Pew Research Center, "Americans' evaluations of the economy remain negative" (July 23, 2026; survey of 3,554 U.S. adults conducted July 6 to 12, 2026, with trend data back to 2016): https://www.pewresearch.org/politics/2026/07/23/americans-evaluations-of-the-economy-remain-negative/
2. Aswath Damodaran, NYU Stern School of Business, Historical Returns on Stocks, Bonds and Bills (S&P 500 annual returns including dividends; updated January 5, 2026): https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html
3. First Trust Economics, "Three on Thursday: Keep Politics Out of Investing" (June 6, 2024; source: Standard and Poor's, Bureau of Economic Analysis, Federal Reserve Board, First Trust Advisors): https://www.ftportfolios.com/Commentary/EconomicResearch/2024/6/6/three-on-thursday---keep-politics-out-of-investing
4. J.P. Morgan Asset Management, 2026 Midterm Election Hub (S&P 500 total return, 1937 to 2025, data as of September 18, 2026; returns by administration as of August 31, 2026): https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-themes/us-elections.html
5. Maarten Meeuwis, Jonathan A. Parker, Antoinette Schoar, and Duncan I. Simester, "Belief Disagreement and Portfolio Choice," Journal of Finance, Vol. 77, No. 6 (2022), pp. 3191 to 3247 (working paper version: NBER Working Paper No. 25108, revised June 2021): https://www.nber.org/papers/w25108
6. 2 U.S.C. § 7, Time of election (Legal Information Institute, Cornell Law School): https://www.law.cornell.edu/uscode/text/2/7