Is the Stock Market More Volatile in Election Years?
In the intricate dance between politics and finance, one persistent notion has taken center stage – the belief that presidential election years bring about heightened volatility in the stock market. While it’s true that elections can inject an element of uncertainty, the question arises: does this perception align with the data? The reality is a bit more nuanced.
I gathered the monthly returns of the stock market (as measured by the S&P 500) since 1990 and segmented them into three groups for comparison:
Group #1: All Months
Group #2: Election Year Months
Group #3: Non-Election Year Months
All Months
Regardless of election year, the average monthly return of the stock market from 1990 – 2003 was 0.90% with a standard deviation of 4.34%.
That means that excluding the extreme months on both the low and high ends, you could typically count on the monthly return of the stock market falling anywhere between -8% and 10%.
Election Year Months
While still positive, the average monthly return of the stock market during election years is much lower than the average at 0.38% with a higher standard deviation of 4.49%. That translates to higher volatility.
Excluding the extremes, the monthly return of the stock market during election years is typically between -9% and 9%.
A large outlier in the data is 2008 when the stock market dropped 37% from January to December. The average monthly return was -3.18% with a standard deviation of 6%. While 2008 was a reality and happened during an election year, the poor return and heightened volatility wasn’t attributed to the election. If we were to remove 2008 from the data the average monthly return during election years is identical to the all-time average in all months of 0.90% with a lower standard deviation of 4%.
Non-Election Year Months
Monthly returns during non-election years tend to be better than the average at 1.06% with a lower standard deviation of 4.29%.
Excluding the extremes, the monthly returns of the stock market during non-election years is typically between -8% and 10%.
Bottom Line
| Period (1990 - 2023) | Average Return | Standard Deviation | Low End | High End |
| All Months | 0.90% | 4.34% | -8% | 10% |
| Election Years | 0.38% | 4.49% | -9% | 9% |
| Election Years (excluding 2008) | 0.89% | 4.00% | -7% | 9% |
| Non-Election Years | 1.06% | 4.29% | -8% | 10% |
As noted previously, the reality of volatility in the stock market during election years is nuanced. If we were to put our blinders on and look at the data without any context, then you could easily conclude that, yes, it is more volatile.
If you were to remove the Great Financial Crisis of 2008 from the data, you would conclude that it’s similar to any other year.
What remains consistently encouraging is the resilience of positive average monthly returns, reinforcing the idea that, despite the perceived uncertainties, the markets tend to find stability and provide the long-term growth we’re looking for, regardless of the political landscape.