How could a UK general election affect the stock market in 2024?

There could be a lot of change on the political stage both at home and abroad in 2024. With a general election expected in the second half of the year here in the UK, and an election planned for November in the US, there’s plenty that could be different before the year is out.

By its very nature, a general election creates uncertainty as different political parties will have their own policies on areas such as healthcare, tax, and housing. You might be feeling a bit apprehensive about the prospect of a general election and how it could affect you and your investments.

It’s impossible to say with certainty how any global events might affect the stock market, but historical trends can shed some light on what has happened in the past. Read on to discover how the UK stock market has performed during past elections and how you could mitigate any possible impact of this year’s election on your investments.

Data suggests that general elections can affect stock market returns, but not always in the same way

A study by Schroders has found that the weeks leading up to an election can be a volatile time on the stock market. The way the market reacts to the upcoming election, though, often depends on how predictable the outcome of the election is.

The table below shows how the FTSE 100 performed in the six weeks running up to a general election in the UK between 1987 and 2015.

Source: Schroders

As you can see, the most dramatic changes to the FTSE in these periods occurred as follows:

• In 1987, a Thatcher win was highly anticipated, leaving little room for uncertainty. Shares performed well, returning 9.7% in the six weeks prior to the election.

• In 2010, it was virtually impossible to predict what the outcome would be. Uncertainty abounded, and returns plummeted by 8.15% in the six weeks prior to the election.

So, there’s no hard and fast rule about how an election will affect stock markets – it usually depends on the specifics of that election, not to mention other events that may be happening at the same time.

The effect of a general election on stock markets is usually short-lived, for better or for worse

While it seems that a general election could have an effect on the stock market, data from past elections shows that it is usually short-lived. Interestingly, within six months of an election happening the stock market has usually resumed the trend it was following before the election was called.

Consider the graph below, showing how the FTSE All-Share index performed before, during, and after historic elections.

Source: IG

You’ll notice that the two bars in the middle of each section – representing stock market returns between an election being called and taking place, and returns the day after the election – tend to be the inverse of the outer two bars, which indicate stock market returns six months before and after the election.

This shows that no matter how an election influences stock market performance, the effects are unlikely to persist for the long term.

A diversified portfolio can help you to mitigate the impact of political events on your wealth

Whatever happens on the stock markets this year, it’s important to remember the role that diversification can play in your investments.

By building a portfolio that’s diversified, any volatility that UK equities experience, for example, could be balanced out by having investments in other countries or a range of asset classes. This can be true of other global events that can cause market volatility too, not just general elections.

Your financial planner can help you to ensure that you’re mitigating the risk posed by market volatility by choosing a range of balanced investments that are suitable for your circumstances, goals, and appetite for risk.

Get in touch

If you’re concerned about the potential impact of global events on your investments this year and beyond, we can help. Please reach out to learn more about how our advisers can support you in achieving your long-term financial goals.

Email theteam@fortitudefp.co.uk or call us on 01327 354321.

Please note

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.