As the world watches the unfolding of numerous elections in 2024, it’s fascinating to observe the interplay between politics and economics. With over 64 elections taking place globally, it’s a year that underscores the vibrancy of democracy.
In the UK, the anticipation of a potential shift in governance from the Conservatives to Labour has stirred discussions about market reactions. Historical data suggests that markets tend to absorb public information efficiently, with prices moving primarily on the release of new, unforeseen information.
The resilience of the stock market, particularly in times of political change, is a testament to its robust nature. Investors often look for patterns or attempt to predict outcomes based on political hues, but the reality is that markets are complex systems influenced by a myriad of factors beyond just election results.
It’s almost obligatory at these times to roll out a chart with the colours of the different parties indicating the periods they are in power – red for Labour and blue for Conservative – and showing the growth of the market. This does not tell you much, apart from highlighting that these events have little impact, as the market prices in events well before they happen. So here it is.
Source: MSCI, Humans Under Management. Visual shows the returns of Global equities in GBP. For illustrative purposes only. Past performance may not be indicative of future results.
However, it’s essential to consider that over 80% of the UK market’s earnings come from overseas. Therefore, solely examining UK politics may not provide meaningful insights. Additionally, the UK represents only a fraction of a global portfolio, accounting for approximately 4% of total world market capitalisation. To position your portfolio effectively, you must factor in all 64 elections, along with other global events, known and unknown. So, let’s look at the US market which accounts for approximately 59% of the total world capitalisation.
Source: S&P, Humans Under Management. Visual shows the returns of US equities in USD. For illustrative purposes only. Past performance may not be indicative of future results
It is evident from the graphs that the markets do not care who is in power and that an investor’s true strength lies in patience and a well-informed, diversified approach to investing.
As we navigate through the next few weeks, it’s crucial for investors to focus on long-term strategies and not be swayed by the transient storms of market speculation.
“The stock market is a device for transferring money from the impatient to the patient.”
– Warren Buffett
