US elections and market volatility: Key considerations

Key takeaways

• US elections can contribute to higher market volatility, but the effect can vary depending on election uncertainty, the outcome and what investors expected.
• Markets may begin pricing election-related risk before voting takes place, so the difference between the expected outcome and the actual result could also matter.
• Volatility measures the size and variability of market movements, not their direction. Higher volatility does not necessarily mean stocks will fall.
• Election-related volatility can differ across asset classes and may depend on the wider economic environment as well as the political context.
• Investors can approach election-year volatility by considering what markets may already have priced in, where their portfolios are exposed and what other economic forces are influencing prices.

US elections can increase market uncertainty as investors reassess expectations around taxation, trade, regulation, government spending and the wider economy. But elections do not automatically produce unusually volatile markets.

The effect can vary depending on what investors expected beforehand, the nature of the election uncertainty, which assets are being considered and what else is happening in the economy at the same time.

That makes the more useful question not simply whether an election will create volatility, but what markets already expect, how the result might change those expectations and which investments could be most affected.

When can US elections affect market volatility?

The market impact of an election is rarely uniform. Some election periods have coincided with unusual volatility, while others have produced much more limited effects, with the differences depending on factors such as the assets involved, the economic backdrop and the political context.

A 2025 study in Finance Research Letters examined several asset classes around US presidential and midterm elections from 1992 to 2024. It found periods of abnormal volatility around some elections, while the size, timing and persistence of those effects varied across asset classes and economic conditions.

The research also examined factors including election uncertainty, winning margins, changes in political control and the wider economic environment. Importantly, those relationships were not uniformly directional. In parts of the pre-election analysis, for example, higher uncertainty was associated with relatively dampened volatility spikes rather than larger ones.

That makes it difficult to reduce election volatility to a simple rule such as “more uncertainty means more volatility”. The same degree of political uncertainty can be associated with different market behaviour depending on the assets involved, the economic backdrop and the broader political context.

Election uncertainty matters, but not in isolation.

Why market expectations matter

By the time voters go to the polls, markets may already have spent weeks or months adjusting to the outcomes investors think are most likely. Polling, policy proposals and expectations about political control can all influence asset prices before Election Day.

If the result broadly confirms those expectations, markets may receive relatively little new information. If it differs materially from what investors had anticipated, assumptions around taxation, government spending, regulation or trade may need to be reconsidered.

Those changes can in turn affect expectations for company profits, inflation, economic growth, interest rates and individual sectors.

The important point is that market reactions can depend partly on the gap between expectations and reality. Correctly predicting an election result does not necessarily mean correctly predicting how markets will respond.

What if the result is delayed or contested?

When an election remains unresolved after voting ends, one source of political uncertainty can persist for longer. Markets may then have to assess not only the likely eventual outcome, but also how long the process could take and what different outcomes might mean for policy.

Ahead of the 2024 US presidential election, Cboe analysis identified both an Election Day volatility premium and additional post-election volatility pricing associated with the possibility that the result might remain unresolved.

That was one completed election cycle, so it should not be treated as a rule for future elections. It does, however, illustrate how markets can distinguish between uncertainty about the vote itself and uncertainty about when the result will become clear.

A delayed or contested result can therefore represent an additional source of uncertainty, although the market effect will depend on the circumstances surrounding that particular election.

Does higher volatility mean stocks will fall?

Higher volatility does not necessarily mean stocks will fall. It describes the size and variability of market movements rather than their direction, so more volatile periods can include larger moves both up and down.

The Cboe Volatility Index, or VIX, is a widely followed measure of expected near-term volatility in the S&P 500. A higher VIX indicates that larger market movements are expected, but it does not by itself predict whether the index will rise or fall.

That distinction is particularly important during election periods. Political uncertainty can affect the range of outcomes investors consider possible without providing a reliable signal about market direction.

A 2026 study of the 2016, 2020 and 2024 US presidential elections, comparing 10-day election periods with the preceding 10-day periods, found significantly higher S&P 500 volatility during the election periods studied.

The analysis covers only three presidential elections and relatively short comparison windows, so its findings should not be generalised to every election cycle.

Higher volatility does not necessarily mean lower returns.

How can investors approach election-year volatility?

Rather than treating an election as a stand-alone trading signal, investors can put the political backdrop in context by looking at what markets may already have priced in, where their portfolios are exposed and what other forces are influencing prices.

There is no single investment rule that applies to every US election. A more useful approach is to work through a few practical questions.

What may already be priced in?

By Election Day, some of the anticipated political outcome may already be reflected in asset prices.

If a particular result or policy direction is widely expected, investors may have adjusted positions before voting takes place. The eventual market reaction can then depend partly on whether the result confirms or challenges those assumptions.

What kind of uncertainty is the market assessing?

Not all election uncertainty is the same. Investors may be unsure about who will win, which party will control Congress, whether the result will be resolved quickly or how campaign proposals might translate into policy.

The relationship between that uncertainty and volatility is not necessarily straightforward. The 2025 Finance Research Letters study, for example, found different relationships depending on the period and characteristics being examined.

It is therefore more useful to understand what markets are uncertain about than to assume that a higher level of uncertainty must produce a larger volatility response.

Where is the portfolio most exposed?

The effects of an election are unlikely to be distributed evenly across a portfolio.

Companies and sectors can have different exposure to taxation, regulation, government spending and trade. Bond markets may respond when political developments alter expectations for inflation, economic growth or government borrowing, while currencies can react to changes in trade, growth and interest-rate expectations.

The relevant portfolio question is not only whether markets become more volatile, but where investments are most sensitive to the policy expectations being reassessed.

Is something else moving the market?

Political developments may dominate the headlines around an election, but they are rarely the only force influencing prices.

Inflation, employment, economic growth, monetary policy, company earnings and geopolitical developments continue to matter throughout an election cycle. A large market move around Election Day may therefore reflect political developments, economic news or a t6combination of several factors.

That is one reason historical election patterns should not be treated as mechanical forecasts of what markets will do next.

What election volatility can and cannot tell investors

Election-related volatility can provide information about uncertainty and changing market expectations, but it cannot reliably predict the election result or the eventual direction of stock prices.

The evidence suggests that US elections can influence financial-market volatility, with the effect varying according to election uncertainty, market expectations, political context, the assets involved and the wider economic environment.

But election-related volatility does not tell investors which political party will win. It does not mean volatility will always increase before or during an election, and it does not predict whether stocks will ultimately rise or fall.

Election volatility is better understood as one possible market response to uncertainty, changing expectations and new information.

As election outcomes become clearer, some political uncertainties may be resolved while others remain, particularly around policy implementation and the broader economic consequences of the result. Markets will also continue to respond to factors well beyond politics.

For investors, the more useful distinction is not simply who wins, but how the outcome compares with what markets expected and what that may mean for the assumptions already reflected in asset prices.