Insights and Strategies

Do U.S. Elections Affect Canadian Markets?

With interest rate easing cycles underway in both Canada and the U.S., focus is shifting to economic growth, employment, and the U.S. election in November. This month, we wanted to gauge the potential impact of the U.S. election on the Canadian stock market. Do Canadian stocks react differently over the 12 months following the election, based on which party is in the White House? Does the composition of Congress and the Senate play into the landscape? We look back at previous U.S. elections to gain insights into what Canadian investors might be able to expect this time.

Key Takeaways:

• An uptick in volatility ahead of the election is normal - The 2024 U.S. presidential election is currently a toss up. With uncertainty comes volatility, which would be expected to persist right up to election day, and perhaps beyond if there is a drawn out conclusion, such as with the Florida recount in 2000, or if we have challenges of certain results. Once the outcome is determined, volatility typically declines.
• Strong post-election performance for S&P 500 and S&P/TSX Composite - Regardless of who wins the election, both Canadian and U.S. key stock market indices typically perform above their long-term averages in the following 12 months.
• Main focus should be on policy changes - We found no clear indications that having a Republican or Democrat winning the presidential election has any immediate impact on the Canadian stock market. What is more important however is specific economic or trade policies, but these can be adjusted considerably from original campaign promises. Key policies like tariffs and fiscal measures take time to play out and have a prolonged impact on market performance.

The bottom line is that investors should stick with well established investment plans and avoid making decisions based solely on short-term noise such as election outcomes.

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Market Commentary