How elections affect markets: Trends, volatility, and tips for traders

Katerina Parpa
Exness Trading Journalist
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How do elections influence financial markets, and what strategies can help you navigate this volatility? Three Exness trading experts share their insights on key trends and volatility patterns surrounding elections, how different asset classes react, and share best practices for turning election-driven market movements into opportunities.
Elections are a key event that can significantly influence domestic and international financial markets. The uncertainty surrounding electoral outcomes often leads to heightened market volatility, creating opportunities and risks for investors. While the results of individual elections may vary, historical trends can offer insights into how markets generally react to election years. In this article, we will explore the impact of elections on financial markets, focusing on trends, volatility, and the best practices for navigating election-driven market movements.
Historical trends: How elections influence markets
Historically, election years have been favorable for stock markets. According to Exness trading expert Stanislav Bernukhov, “The S&P 500 and FTSE 100 have made gains in most election years since 1960.” This trend has held steady despite political shifts and economic fluctuations. The average gain for the S&P 500 during pre-election years is around 10%, underscoring the optimism that can surround election cycles. Investors often expect stability or positive changes, driving markets upward.
However, there are exceptions to this trend. For example, in 2000 and 2008, markets struggled due to broader economic crises—the dot-com bubble burst in 2000 and the global financial crisis in 2008. These examples show that while elections can provide short-term optimism, external factors such as economic conditions and global events can heavily influence market performance.
Expert trader and investor Michael Stark adds, “Markets tend to prefer a Republican president because of deregulation and pro-business policies, but when a Democrat is elected, gold tends to gain as investors seek safety in uncertain times.” This is a notable trend for gold, which historically performs well in times of political uncertainty or when policies are expected to be less business-friendly.

Volatility and its timing: Pre- and post-election movements
One of the most important factors during election years is volatility. The uncertainty of an election’s outcome can make markets nervous, leading to sharp swings in asset prices. This volatility isn’t always confined to the period before the election—markets can remain turbulent even after the results are known.
Stanislav points out, “Volatility tends to increase around major elections. That doesn’t always happen right before the elections, which would be logical, but can also happen after.” For instance, in 2024, the British pound showed significant activity after the general election, reflecting the markets' uncertainty even after the vote. This phenomenon occurs because investors are not only reacting to who wins but also to what policies the new government will implement and how those policies will affect businesses and the broader economy.
The US presidential election is a prime example of how this dynamic plays out. The election period often brings intense speculation, with markets oscillating in response to polls, debates, and political developments. Traders and investors should be aware that while election cycles offer potential opportunities, they also come with the risk of sharp market corrections, especially if the election outcome is unexpected or highly contested.
Sectoral impacts: Stocks, bonds, and gold
Different asset classes react to elections in distinct ways. For instance, stocks may benefit from a favorable business climate if pro-market policies are expected. On the other hand, bonds and gold tend to perform well in periods of heightened uncertainty, as they are considered ‘safe-haven’ assets. This divergence in performance between asset classes creates opportunities for diversification.
Stanislav highlights the relationship between bonds and stocks during election years, “Usually, bonds are considered safer options than stocks. When bond yields are moving up, more capital flows into them, and stocks face pressure. The opposite is also true.” For traders, understanding this inverse relationship is important when positioning portfolios around elections, especially when significant uncertainty surrounds the outcome.
Meanwhile, gold has a unique relationship with US elections. Michael notes, “Gold usually gains when a Democrat is elected president and loses value if the president-elect is a Republican.” This is because gold is often seen as a hedge against uncertainty and inflation, both of which can rise with a change in government. For example, gold prices spiked following the election of Barack Obama in 2008 as the global financial crisis created a flight to safety.
Best practices for navigating election-driven markets
Given the heightened volatility and uncertainty that elections bring, it’s essential for investors and traders to approach these periods with a well-thought-out strategy. While no one can predict election outcomes with certainty, there are ways to mitigate risk and take advantage of the opportunities that elections present.
First, it’s important to avoid overconfidence during these periods. As Exness trading expert Antreas Themistokleous explains, “One of the biggest cognitive biases in trading is the illusion of control. Traders sometimes believe they have more information than they really do, especially during highly publicized events like elections.” This overconfidence can lead to poor decision-making, such as taking excessive risks based on speculative information. Investors should instead focus on data-driven strategies and maintain discipline in their decision-making processes.
Diversification is another key strategy during election years. By holding a mix of stocks, bonds, and commodities like gold, investors can protect themselves against sharp downturns in any one market. Additionally, keeping an eye on broader economic indicators, such as interest rates and inflation expectations, can help traders make more informed decisions.
Finally, it’s essential to have a clear exit strategy. Markets can swing wildly based on election results, so investors should set stop-loss orders and have predetermined plans for when to exit positions if volatility becomes too extreme.
Key takeaways
- Election years tend to favor markets: Historically, the S&P 500 and FTSE 100 have gained in most election years, with an average S&P 500 gain of 10% during pre-election years.
- Volatility increases around elections: Markets often experience heightened volatility both before and after elections, as investors react to the uncertainty of political outcomes.
- Political parties impact different asset classes: Stocks may benefit from pro-business policies under a Republican president, while gold often gains value during Democratic presidencies.
- Bonds and stocks have an inverse relationship: During election cycles, rising bond yields can pressure stocks, while declining bond yields can push more capital into equities.
- Avoid cognitive biases: Overconfidence and the illusion of control can lead to poor decisions during elections. It’s essential to remain disciplined and data-driven in decision-making.
- Diversification is key: Holding a balanced portfolio of stocks, bonds, and commodities like gold can help mitigate risks during volatile election periods.
- Have an exit strategy: Markets can react sharply to unexpected election outcomes, so it's important to set clear stop-losses and know when to exit positions.
Final thoughts: Turning election volatility into opportunity
Elections can create significant volatility in financial markets but also present unique opportunities for savvy investors. By understanding historical trends, the timing of volatility, and how different asset classes react, traders and investors can make more informed decisions. As Stanislav, Michael, and Antreas have highlighted, elections are complex events that don’t happen in isolation. They interact with broader economic factors, and their impact can be both immediate and long-lasting.
For investors and traders, the key to navigating election-driven markets is to remain disciplined, avoid cognitive biases, and stay diversified. While elections are unpredictable, the right strategies can help turn volatility into opportunity.
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