The Impact of Political Events on Markets

The markets are undoubtedly going through difficult times due to a number of factors, including the economic-bending policies of Trump 2.0, the rise of the far right in Europe, the new alliance between Russia and the US, the wars in Ukraine and the Middle East, and the US President’s promise to overturn international trade regulations.

The intricate interplay between politics and markets is reflected in the recent months’ volatility in some sectors and cautious optimism in others.

Of course, the way investors arrange their portfolios affects market performance, and this is influenced by economic policies, rules, and regulations, such as tax hikes or cutbacks, new corporate regulations, or even referendums.

Following the UK’s vote to exit the European Union in 2016, the value of the pound fell sharply, wiping out over US$2 trillion from global stock markets.

The FTSE 100 underperformed other markets in the four years that followed until Brexit was eventually completed in 2020, as both domestic and foreign investors sought out other ways to reduce risk.

Even though it has increased since a sharp decline during the coronavirus pandemic, about 90 businesses will leave the London Stock Exchange in 2024.

 

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Changes in interest rates and any indication of political unrest can potentially trigger a sell-off or a price increase, as businesses postpone capital expenditures and limit economic expansion.

Following Russia’s invasion of Ukraine in 2022, which caused European stock markets to plummet 4% in a single day, global oil prices surged 30%. Since then, oil prices have fluctuated and are now back to pre-war levels, while gold has reached new heights as investors around the world seek refuge from high geopolitical risks.

 

Do Elections Have an Impact?

In the last six months or so, elections have played a significant role in the market, which nearly always causes disturbances during the uncertain campaign time and quickly after the vote is announced.

According to an analysis of 75 years of US market data, there won’t be much of an effect on the performance of financial markets in the medium to long term, despite possible spikes in volatility in the run-up to the vote. According to the research, market returns are generally more influenced by inflation and economic trends than by election outcomes.

However, there were some market fluctuations during the tumultuous 2024 US Presidential campaign, including the Democrats’ turmoil and the transition to Kamala Harris as the nominee. Investors were both encouraged and discouraged by Donald Trump’s numerous policy statements on taxes, immigration, government cost-cutting, and tariffs.

The three days leading up to and following election day were analyzed by Macquarie University academics, who discovered notable anomalous returns in US stocks just after the vote.

However, the spike was brief since market attitude changed. In anticipation of regulatory reforms, the energy sector witnessed significant gains as well, although small-cap stocks with greater domestic exposure had the largest returns.

Extreme share price volatility has occurred, despite the fact that the S&P 500 and the Nasdaq have both increased overall since the election.

 

Australia’s Performance

Meanwhile, the number of global events has so far had limited influence on markets ahead of Australia’s next federal election.

Investors and governments alike are becoming increasingly alarmed by the US’s intermittent tariffs. Economic uncertainty could result from tariffs on our exports, which could raise prices and decrease demand for our products and services.

Following President Trump’s announcement of tariffs on China, Canada, and Mexico in early February, the Australian stock market plummeted, depleting the ASX 200 by about $50 billion. After a brief recovery, they fell once again when the Reserve Bank lowered interest rates. Due to the announcements’ volatility and uncertainty, a number of tech businesses in the US postponed or canceled their intentions to list.

The majority of experts concur that the markets are unlikely to reach the 7.49% gain the S&P ASX 200 recorded last year, despite a tumultuous start to 2025.

Michele Bullock, the governor of the Reserve Bank of Australia, is similarly pessimistic about the year’s prospects, stating that there is still “significant” uncertainty over the global outlook.

If you are keeping an eye on global events and are curious about how they may affect your portfolio, contact us today!

 

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