CIO Insights: The winning strategy for elections? Stay invested

22 March 2024
Stephanie Leung
CIO Office

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10 minute read

2024 will be a big year for politics, with about half of the world’s population going to the polls. But the election that most investors are keeping a close eye on is the US presidential race in November.

In this month’s CIO Insights, we explore the possible outcomes of the US election, as suggested by the underlying economic data – and how these outcomes could, in turn, impact the markets.

Key takeaways:

  • The latest polls point to a close race between President Joe Biden and former President Donald Trump. Historical data suggests the state of the economy tends to have a strong correlation with election outcomes. While it's still too early to call, current economic conditions for key swing states could bode well for Biden – if the economy remains strong over the coming months.
  • How could the election outcome impact markets? Historically, US Treasuries have posted markedly stronger gains during Republican presidencies, while the S&P 500 has seen broadly similar gains no matter who is sitting in the White House.
  • Biden and Trump’s own presidential terms also give insight into what their policy agendas could look like, and how that could impact certain sectors. A win for Biden would mean a continuation of the status quo – pointing to support for clean energy and certain areas of healthcare. For Trump, his record shows a focus on fossil fuels. 
  • Interestingly, defence could be a focal point for both, given the uptick in geopolitical tensions in recent years. Additionally, their tough stances on China could have implications for tech.
  • Looking past the near-term political cycle, US equities and bonds have shown solid, positive performance over a longer time horizon – no matter the political party. Ultimately, the winning strategy for the long-term investor is simple: instead of trying to time the market, maximise your time in the market.

The economy can have an impact on election results 

When it comes to elections, the economy tends to have a strong correlation with voting outcomes. Our research finds that, over the past 90 years or so, weaker economic conditions – slower GDP growth, rising inflation, or a pickup in unemployment – tend to see the incumbent political party losing office, and vice versa.

That’s particularly relevant for the current election: given that inflation has been elevated in recent years, the economy is likely to remain a very important issue for voters. And so far the data suggest that the US is largely in good shape – with robust GDP growth, slowing inflation, improving consumer sentiment, and a low unemployment rate. That’s all good news for Biden. 

But given how close the race is – the latest polling data show Trump is leading Biden by only about 2 percentage points – it’s the economic conditions in key swing states that could ultimately determine the winner. Here, the data also appear favourable for Biden, shown in the table below. GDP growth in these states are relatively strong on average, inflation rates have been coming down significantly, and unemployment rates are broadly low and declining.

That said, there are factors beyond economics that could shape the race. Voter concerns about the candidates’ advanced age mean their vice presidential candidates could play a role in voters’ preferences. Trump’s ongoing legal proceedings are also likely to impact his favourability: 53% of surveyed voters in the above 7 swing states say they would be unwilling to vote for him if he was convicted of a crime. And a number of big issues are also at play – including immigration, healthcare, and foreign affairs. 

While history suggests election outcomes have had limited impact on equities, government bonds have performed better under Republicans

How could the results of the election impact markets? History suggests that the outcome has had a stronger relationship with US bond returns than those of equities.

Data from the past 50 years show that US government bonds have performed better overall during Republican presidencies. Looking at 2-year periods corresponding with Congressional terms, median total returns for Treasuries amounted to 21% when a Republican was in the White House, versus 6% for Democrats. When a Republican president has faced a Democratic or divided legislature, bond returns have historically been even higher.

On the other hand, the picture for the S&P 500 is similar between Democratic and Republican presidencies. Over the past century, median equity returns have been broadly positive – roughly 25%-30% over each 2-year Congressional term, no matter who sits in the Oval Office. 

There’s also evidence of a relationship between stronger equity returns and a divided government (where control of the two chambers of Congress is split between the two political parties), but not enough to come to a definitive conclusion. In short, equity markets have historically appeared to be more non-partisan, when compared with bonds.

Biden and Trump’s policy track records highlight potential equity sector impacts

Each presidential candidate comes with their own policy agenda. And this is where election outcomes could have a more apparent impact on markets, especially on equity sectors. Let’s hone in on three areas of interest for both Biden and Trump:


The healthcare sector has traditionally been associated with choppier performance during election years. That’s because the potential for shifts in policy under a new administration can have a big impact on various parts of the sector, from health insurers to pharmaceutical companies. 

For Biden, the administration’s healthcare policy has been centred around expanding access to healthcare, strengthening the Affordable Care Act (ACA), and lowering drug prices. 

For Trump, lowering drug costs and health insurance premiums is also a focus for his current campaign, and as president he took a number of actions to try to roll back the ACA. 

Investment takeaway: The potential impact of these policies on the sector is mixed – while improved healthcare access would be a positive for healthcare services firms, lower drug costs could pose a challenge to pharmaceutical companies. Studies on the performance of healthcare stocks after the ACA’s implementation suggest that what’s most important is policy certainty – something that Biden is more likely to offer. 

Climate and energy 

The energy industry has faced a different set of policies under the Biden and Trump administrations – each with significant impacts on different corners of the sector.

For Biden, climate and renewable policy has been a key focus – highlighted by the passage of the Inflation Reduction Act (IRA) in 2022. That’s been a positive for the clean energy sector, with projects amounting to US$282 billion in investment announced in the first year.

That contrasts with the Trump administration’s legacy, which focused on increasing domestic fossil fuel production, benefitting oil, gas and coal companies. 

Investment takeaway: Both Biden and Trump’s presidential track records are relatively clear, with the former favouring clean energy and the latter fossil fuels. That said, if Trump wins re-election, we see a low probability of a rollback in Biden’s renewable energy policies. Why? About US$225 billion of planned IRA-related investments, or 80% of the total so far, are in Republican congressional districts.


For the defence sector, firms rely heavily on contracts from the federal government. That means earnings and performance can be tied to shifts in political party control. 

However, despite their political differences, both Biden and Trump have shown similar spending patterns on the military – or over 3% of GDP on average during their terms. Trump increased the US defence budget after years of cuts under President Barack Obama. Meanwhile, Russia’s invasion of Ukraine and the Israel-Hamas war have contributed to US military spending under Biden.

Investment takeaway: Amid increased geopolitical conflict, global defence budgets are projected to post a compound annual growth rate (CAGR) of 4.9% over the next five years. Against this backdrop, US defence spending is likely to hold up in the near to medium term – regardless if it’s under Biden or Trump. 

We also note that China remains a hot issue for both parties in the upcoming election. Here, both Biden and Trump have taken a tough stance – particularly in limiting Beijing’s access to US technological developments. The technology sector could be vulnerable, given its relatively high exposure to that economy. About 16% of S&P 500 IT companies’ revenues and 27% of semiconductor firms’ sales come from China. 

Looking past the political cycle, what matters most is staying invested over the longer term

Over the past century, even as political party control has shifted, US markets have remained on an upward trajectory. As the chart below illustrates, if you (or your parents!) invested US$1,000 in the S&P 500 in 1973, that would equal US$186,021 today, or an annualised return of nearly 11%. The same amount in US Treasuries would equal US$22,637, or a yearly return of more than 6%.

Compared with cash, which would total US$11,029 by the end of that period, staying invested in equities would’ve returned nearly 17 times that amount. Keep in mind though, those returns would have been exposed to much higher volatility. 

This just goes to show the importance of looking beyond shorter-term events. Cycles come and go – be they political or economic. When you zoom out over history, those peaks and troughs start to look small. So, the winning strategy is simple: instead of timing the market, maximise your time in the market.

Glossary of Terms

Swing state

A place where the vote can go either way, swinging between political parties. A shift in voter sentiment here can determine the outcome of an election.


Neutral or unbiased, especially in the context of politics.

Compound annual growth rate (CAGR)

How much something has grown each year, on average. This also takes into account profits that are reinvested, which generate even more growth.

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