31 January 2024
2024 is set to be a fascinating year for politics, with both the US and UK expected to hold general elections by the end of the year.
On 16 January, the BBC reported that prime minister Rishi Sunak says he expects to call a general election “in the second half of 2024”.
Officially, the latest date that parliament can dissolve for a general election is the fifth anniversary of the day it first met, which was 17 December 2019. There are then 25 days for parliament to prepare for the election, so it’s almost certain that we will have a UK general election before 28 January 2025.
Set on a stricter timeline, the US election is scheduled to take place on 5 November 2024.
Both here and in the US, elections are an important part of the democratic process, but they do often cause some tension and upheaval. In the past, these reverberations have been felt in the stock market too, causing some short-term fluctuations that affected investors’ portfolios.
So, will the upcoming US and UK elections have an effect on your investment portfolio? Read on to learn what history tells us about elections and the stock market.
Past UK general elections have had a significant impact on domestic markets
On Friday 13 December 2019, just one day after the general election that saw the Conservatives remain in power, the Guardian reported that the London stock market had “surged by £33 billion”.
The report reveals that the FTSE 250 index reached an “all-time high”, closing 714 points up after the Conservatives were elected. British firms also soared after the election results were published, with Virgin Money gaining 18% and Stagecoach going up 16%.
However, it is important that UK investors’ confidence in a Conservative government has proved inconstant.
In 2022, when Liz Truss assumed the position of prime minister after Boris Johnson resigned, the stock market was pushed into an extraordinary downswing. Bloomberg reported that within one month of Liz Truss becoming prime minister, “at least £300 billion” was wiped from the UK’s combined stock and bond values.
As such, it’s crucial for investors to consider the wider sociopolitical circumstances in which an election takes place. The pre-Covid election in 2019 was largely concerned with Brexit, and Johnson had promised to “get Brexit done”, perhaps consolidating investor confidence in a smooth transition out of the European Union.
Whereas, after enduring two and a half years of the pandemic, and with Truss at the helm, clearly investor sentiment was very different in September 2022.
Fast forward to late 2024, and the effects of Covid are still being felt, but there are other issues on the table too. Geopolitical conflict, the funding of public services, and the cost of living crisis may be at the front of voters’ minds.
As such, it is impossible to predict how investors may react to the result of the next UK general election, but it may be wise to anticipate some volatility in the days, weeks, and months that follow.
US elections have typically caused market volatility in the past
When controversial political figure Donald Trump was elected president of the US in 2016, many investors around the world panicked overnight.
Yet according to the Guardian, after a night of extreme reactions from investors, markets opened the next morning in a “surprisingly calm” state. In the month that followed, according to Schroders, “Equity markets generally gained, with financial stocks performing well. US equities advanced and macroeconomic data largely improved”.
In 2020, when Joe Biden was elected amid Covid-19 chaos, US indices rose too, with Forbes reporting the performance was “trouncing Trump’s” post-election stock market increases.
Yet once again, context is important: at the end of 2020, Schroders also reminded investors that the recent stock market upswing may have been down to “vaccine news developments eclips[ing] Joe Biden’s win in the presidential election”.
Remembering that several forces are likely to affect markets around the time of an election could help you to remain calm as an investor, rather than focusing solely on how political news may affect your portfolio.
Short-term volatility is unlikely to affect your long-term investment plans
Throughout 2024, it may be that UK and US markets are affected by investors anticipating, and reacting to, the general elections in each country.
For instance, the likelihood of Trump returning to the White House seems to be increasing by the day – and unlike in 2016, when his presidency caught many by surprise, investors may be on tenterhooks as the election draws closer.
Similarly, a Labour victory in the UK could provoke a mixed reaction among investors. Even though Keir Starmer is expected to become Britain’s next prime minister – YouGov reported in January 2024 that 47% of those polled planned to vote Labour, compared to 20% saying they will vote Conservative – this does not mean that a shift from a Conservative to a Labour government won’t provoke volatility in the markets.
Ultimately, though, any fluctuations prompted by these elections is unlikely to affect your long-term plans. If you are set to keep investing for the next five, 10, or 20 years, the impact of these elections is likely to have washed away by the time you come to cash in any investments.
If you were planning to liquidate investments this year, perhaps to help fund your retirement, it may be wise to discuss this move with a financial planner before you act. We can help ensure that any politically fuelled volatility has a minimal impact on your portfolio where possible.
For most people, though, staying calm and remaining invested may be the most viable option, even if you see your portfolio’s value go up and down as a result of political change.
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This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.