Election to Elevation: 134 Global Lessons for Investors as Inauguration Nears!

The decision by Ron DeSantis to withdraw from the Republican presidential race highlights the potential impact of elections on financial markets, especially considering the upcoming political events in the U.S., India, Mexico, and likely the U.K. this year.

Citi’s strategists analyzed the market effects of 134 elections across 17 countries, excluding periods of global market volatility such as the financial crisis and the COVID-19 pandemic. Contrary to expectations, their findings suggest that elections generally do not have a significant influence. Developed market equities experience some volatility around election day but typically maintain a mild upward trajectory before and after the polls.

Specifically in the U.S., equity markets tend to show an upward trend leading into elections, with a continued ascent afterward. Sectors tied to economic cycles, in particular, tend to perform well post-election. Although volatility, as measured by the VIX, increases during election periods, it tends to subside later.

A noteworthy finding is that while markets generally favor continuity, they adapt to “change” elections where policies undergo a shift, albeit with a delay of around four to five months. Initially, right-leaning parties are preferred, but after about five months, markets adjust positively to left-leaning parties, which tend to perform better after six months.

In emerging markets, equities often decline leading up to elections and then experience an upswing afterward. The markets with upcoming elections this year show mixed results. Indonesia, Taiwan, and South Africa tend to see positive trends six months post-election day, while India and Mexico show a tendency to trade somewhat lower. Emerging markets typically lean towards favoring change over continuity candidates.

Despite prevailing political uncertainties, the S&P 500 has demonstrated resilience, recording a 1% gain this year and achieving a record high on Friday. Over the past 52 weeks, the index has posted a notable 22% increase.