How do politics affect the markets?

Like many Canadians, you may wonder how politics affect financial markets. You may also wonder whether you should change your strategy based on political events.
How have stock markets performed after past elections?
You may be surprised to learn that the stock market has increased regardless of which party controls parliament, with the S&P/TSX Composite providing an annualized return of roughly 10% since 1977.1 Although there has been volatility over the years, the stock market has done well regardless of which party holds office. These long-term results should serve to give you confidence in the market regardless of election results.

This chart shows that the TSX has posted positive returns between elections since 1957, regardless of which party is in power.

This chart shows that the TSX has posted positive returns between elections since 1957, regardless of which party is in power.

This chart shows the growth of $100 invested in the S&P/TSX Composite from 1957 to 2024.

This chart shows the growth of $100 invested in the S&P/TSX Composite from 1957 to 2024.
While political leaders may enact laws and regulations in hopes of influencing economic growth, the results are not nearly as predictable as they might imagine. Economic indicators such as jobs, interest rates and inflation can sometimes run counter to prevailing policies.
Do government policies impact my investment returns?
Although changes in government policies can affect investment returns, they’re much harder to predict than you might think, and the consequences of policy changes are usually not as expected. We think it’s better to follow time-tested investment principles and avoid letting politics influence your long-term strategy.
How do politics impact the markets?
Politicians often make many promises that go unfulfilled. That’s partly due to governmental systems of checks and balances. However, we believe market forces are more powerful than political forces over the long term. What sounds promising during election campaigns often may not work in reality.
What about other factors that affect the prices of stocks and bonds? Again, it’s not about the politics but rather market forces.

This chart shows the Canadian economy’s long-term trend as measured by real gross domestic product, and depicts a fairly good record over a variety of political environments.

This chart shows the Canadian economy’s long-term trend as measured by real gross domestic product, and depicts a fairly good record over a variety of political environments.
Are election years good years to invest?
There’s almost always uncertainty about the short-term outlook. Politicians often raise many questions with few easy answers. If you’re feeling uncomfortable, remember this: The mix of investments you own will make a larger difference to your long-term “victory” or “defeat” as an investor than any election results.
We believe equity market volatility related to political uncertainty can create attractive buying opportunities for long-term investors. It’s also important to ensure you have an appropriate type and amount of fixed-income investments. By maintaining an investment mix tailored to your situation, we think you’ll find it easier to look past short-term political and market uncertainties.
We can help
The success, growth and resiliency of Canada doesn't change with each political event, and neither should your investment strategy. Talk to an Edward Jones advisor to help you focus beyond the election outcome and “vote” for sound investment principles, such as buying quality investments in a well-diversified portfolio and holding them for the long term.
Important information:
1 Source: Morningstar Direct. Total return of the S&P/TSX Composite 1/1/1977 – 10/31/2024. The S&P 500 is an unmanaged index, cannot be invested in directly and is not meant to depict an actual investment. Past performance is not a guarantee of future results.