With the election just weeks away, you’ve probably seen some pretty dramatic predictions about what will happen to the economy if one side or the other wins.

While the outcome of this particular election is hard to predict (not just nationally, but for state and local offices as well), economists have identified some market behavior that’s sure to occur.

Just the fact that we’re having an election tends to increase uncertainty. Investors don’t like uncertainty. And so it tends to make them react more strongly to market information.

“In the absence of a clear consensus about the (election) outcome,” writes economist Clive Walker, “we see larger daily price changes that seem to offset each other.”¹

In other words, we might see bigger swings both up and down, but in the long run stock prices will likely remain largely unchanged.

Businesses also don’t like uncertainty. One study found that U.S. firms tend to reduce investment expenditures during election years, which can depress the market. On the other hand, older research suggests that politicians often attempt to boost the economy before elections.

Sources:

1. https://www.economicsobservatory.com/how-do-elections-affect-the-stock-market

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