United States presidential elections generate an extraordinary volume of market commentary. Banks publish multi-scenario analyses. Cable news anchors present investment predictions as if they were facts. Investors genuinely worry about what a change of administration will mean for their portfolios.
The underlying anxiety is understandable. The US is the world's largest economy and the home of the world's largest equity market — accounting for approximately 65% of global market capitalisation. US policy decisions on taxation, regulation, trade, energy, and healthcare affect companies across the world. A shift from one administration to the next can reverse policy directions that the previous occupant spent years establishing.
And yet the historical evidence on the relationship between US presidential election outcomes and long-run equity market returns is decidedly inconclusive. The evidence suggests that investors who make significant portfolio changes based on election results typically fare worse than those who do not. This guide explains why, and how internationally mobile investors should actually think about US political risk.
The Historical Evidence: No Strong Party Effect
The most common question investors ask is whether the market performs better under Republican or Democrat presidents. The honest answer, looking at the data from 1928 to 2025, is that the market has performed reasonably well under both — and the differences, when they exist, are largely explained by other factors.
Democrat-controlled presidencies do show somewhat higher average S&P 500 returns in aggregate, a finding that appears in multiple academic studies. But this result is heavily influenced by timing: Republican presidencies have been more likely to coincide with recessions (the Great Depression under Hoover, the 2001 recession under George W. Bush, the 2008 financial crisis under George W. Bush, the 2020 Covid recession under Trump). These recessions were not caused by party affiliation — they were exogenous events that happened to occur during those administrations.
When you control for the starting valuation of the market, the economic cycle, and prevailing interest rate environments, the presidential party affiliation explains very little of subsequent equity market returns. The market does not have a reliable political preference.
The presidential election cycle — the tendency for markets to perform well in the third year of a presidential term — is a more robust statistical observation, but it too is subject to revision and should not form the basis of investment strategy.
Where Party Affiliation Does Matter: Sector-Level Effects
While aggregate market returns show little consistent party effect, there are sector-level differences in policy direction that create relative winners and losers under different administrations.
Energy: Republican administrations have historically been more supportive of domestic fossil fuel production and less supportive of clean energy mandates. Democratic administrations have prioritised clean energy investment (most dramatically with the IRA in 2022) while imposing more regulatory constraints on oil and gas. Energy sector returns have been affected by these policy differences, though the oil price (determined by global supply and demand) remains the dominant factor.
Healthcare: US healthcare policy is intensely politically charged. Democratic administrations have generally been associated with pressure on pharmaceutical pricing (which investors fear will compress pharma margins) and expanded insurance coverage mandates. Republican administrations have attempted to roll back the ACA and are more sympathetic to pharmaceutical industry positions. Healthcare sector valuations have historically shown volatility around elections.
Defence: Republican administrations have generally favoured higher defence budgets and a more assertive US military posture. Democratic administrations have varied: the Biden administration maintained high defence spending in response to the Ukraine conflict. Direction of travel is less predictable than popular perception suggests.
Clean technology: the contrast is starker here than in most sectors. The IRA's clean energy investment incentives were introduced by a Democratic administration and faced credible rollback risk from a Republican successor. Clean energy stocks have been sensitive to this political uncertainty.
Financial services: Republican administrations have generally been more sympathetic to financial sector deregulation. Democratic administrations have introduced more regulatory requirements. The practical impact on bank profitability and valuations has been less dramatic than headlines suggest.
US Dollar Implications
US presidential elections can influence the dollar through several channels: trade policy, fiscal policy, and Federal Reserve independence.
Aggressive tariff proposals (associated more with recent Republican administrations, though not exclusively) have historically been associated with initial USD strengthening (as markets price in fewer imports and reduced trade deficits). The longer-run dollar impact depends on whether the tariffs successfully reduce the trade deficit (generally, they do not, because tariffs reduce both exports and imports when trading partners retaliate).
Concerns about Federal Reserve independence — whether an administration might pressure the Fed to keep rates lower than its inflation mandate would dictate — are USD-negative if they affect credibility. These concerns have been a recurring feature of market commentary since 2017.
For UK and international investors whose portfolios have significant USD exposure, election outcomes can create short-run currency volatility that affects sterling returns without affecting the underlying USD investment performance.
Trade Policy and Tariff Risk
US trade policy is perhaps the clearest channel through which presidential election outcomes affect global investment. Tariff regimes imposed by the US have direct effects on companies with cross-border supply chains, on US importers and their profit margins, and on the countries and companies that are targeted by tariffs.
UK investors are not direct targets of most US tariff measures, but they hold significant quantities of global equities through their investment portfolios. Multi-national companies listed in the UK, Europe, and emerging markets that sell into the US market — or that use US inputs — are all affected by changes in trade policy.
The risk is not simply that tariffs are announced. It is that tariff uncertainty causes companies to delay investment decisions, restructure supply chains, and reduce capital expenditure — all of which have second-order economic effects.
What UK and Global Investors Should Do
The practical answer is more boring than the commentary warrants: investors should not materially restructure diversified portfolios in response to US election results.
The historical evidence is clear that investors who time their market exposure to election outcomes underperform those who maintain disciplined asset allocation through political cycles. The market often moves in ways that are counterintuitive to prevailing political expectations — the US equity market rose significantly in the immediate aftermath of several election outcomes that commentators had predicted would be negative for markets.
That said, election results can legitimately inform tactical tilts within a diversified portfolio:
- Sector rebalancing: an investor already overweight healthcare or energy may consider trimming to reduce political risk concentration
- Currency hedging: election uncertainty creates USD volatility that may warrant hedging for very large currency exposures
- Duration positioning: fiscal policy implications for bond markets (deficit-funded tax cuts are potentially inflationary) are a legitimate consideration for fixed-income positioning
None of these are binary, all-in decisions. They are modest adjustments within a strategic framework that should remain stable across political cycles.
Values can fall as well as rise. This article is for information purposes only and does not constitute investment advice. Past political/market relationships are not a reliable guide to future outcomes.
How Global Investments Can Help
Our advisory team works with internationally mobile HNW clients who hold globally diversified portfolios with significant US exposure. We provide grounded, evidence-based perspectives on political risk — distinguishing between media narrative and genuine investment-relevant signals. We help clients avoid the common mistake of making large portfolio changes in response to political events that markets have already priced, or will price differently to consensus expectations.
Contact our team to review your portfolio positioning and discuss how political risk is appropriately factored into your investment strategy.
This article is for general information only and does not constitute financial, legal or tax advice. Rules, prices and regulations change; verify current requirements with a qualified adviser before acting.