Thinking of moving to cash or trading a candidate's tax promise? Explore the ten biggest election misconceptions and what historical S&P 500 performance actually reveals.
Election season has a special talent for turning politics into market certainty.
One candidate is "good for stocks" while another will "destroy oil". A poll moves three points and suddenly someone has found the perfect sector trade. Lovely theory. But markets are rarely that cooperative.
So before the campaign trail starts managing the portfolio, here are 10 election myths worth putting through a market reality check.
Fundamentals rule
Economic growth and corporate earnings historically matter far more to long-term returns than election outcomes alone.
Promises vs. policy
Campaign speeches alter immediate expectations, but actual policy depends on congress.
Fed independence
The Federal Reserve makes interest rate decisions based on jobs and inflation, not election calendars or opinion polls.
Fiscal arithmetic
Bond investors focus purely on two things: how much debt the government is issuing and whether inflation will eat away at their returns.
1. My political party is better for stocks
Reality check: History is considerably messier. US equities have delivered positive average returns under Democratic, Republican and divided governments. Historically, economic conditions, corporate earnings and business investment have mattered more to long-term returns than election outcomes alone.
That does not make elections irrelevant. Different administrations and congressional majorities can change policy but party control is not a market direction button.
Politics leads to new laws, and new laws change how the market behaves. A party name does not tell you where the market is going; you have to look at the actual policies they pass.
2. Campaign promises become policy and tax cuts mean an instant rally
Reality check: Presidents cannot change tax rates on their own; they need approval from Congress. By the time a proposal goes through political negotiations, vote counts and legal hurdles, the final legislation often looks very different from the original campaign speech.
What matters to markets is not the promise, but what can actually pass into law and when it takes effect.
Speeches make promises, but laws deliver results. Instead of reacting to political rhetoric, the market focuses on three practical realities: what gets enacted, when it rolls out, and the true economic result.
3. Going 100% cash before Election Day removes risk
Reality check: Moving to cash reduces exposure to market price movements, but it introduces a different problem: what happens next?
Historically, the S&P 500 posted gains in the 12 months following midterms in 95% of observations since 1938. And while that is only historical evidence and not a forecast for 2026, the election calendar cannot tell markets when uncertainty will peak or fade.
Reducing one form of risk does not eliminate risk, in fact, it changes the exposure.
4. Tariffs automatically help domestic markets
Reality check: Tariffs can protect some domestic producers from foreign competition. They can also raise the price of imported steel, electronics, machinery and other inputs used by those same companies.
Federal Reserve research into the 2018 to 2019 US tariffs found that manufacturing industries with greater tariff exposure experienced higher input costs and retaliatory pressure that more than offset the benefits of import protection in the study's estimates. So the important question is not simply whether a company is American. It is what it buys, where it buys it, and how easily higher costs can be passed on.
Tariffs can create winners, losers and several uncomfortable earnings calls in between.
5. The President controls the oil price
Reality check: US policy can influence domestic production, sanctions, regulation and strategic reserves. But crude is a global market.
The US Energy Information Administration (EIA) identifies global supply and demand, economic growth, inventories, geopolitical disruption and OPEC production decisions among the major influences on crude prices. OPEC members account for roughly 35% of global crude production and hold most of the world's spare production capacity. Presidential policy matters. It just does not get the only vote.
Oil has Washington. It also has OPEC+, inventories, shipping lanes and a very large world map.
6. The Fed's rates swing the election
Reality check: The Federal Reserve has a congressional mandate focused on maximum employment and stable prices and operates with independence over monetary policy decisions.
The Fed explicitly states that this structure is designed to insulate monetary policy from short-term political influence and base decisions on economic evidence and analysis. That does not prevent politicians from criticising the Fed. It does mean political polling is not one of the Fed's stated policy objectives.
Inflation, jobs and economic conditions drive interest rate decisions. Election dates do not.
7. Big Tech is getting broken up
Reality check: An antitrust headline is not the same as a company breakup.
Regulatory lawsuits take years to play out, and many cases end in operating agreements or settlements rather than forced divestitures. The real financial impact depends on what courts actually enforce and how the company adapts, not the initial political noise.
Headline first. Legal process second. Market consequences somewhere after that.
8. Prediction markets tell me what stocks will do
Reality check: Does a 70% win probability equals a 70% chance of a market rally? No, that is not what the number measures.
The Commodity Futures Trading Commission (CFTC) explains that an event contract's price reflects participants' perceived probability of the underlying event occurring. It does not represent the probability that the S&P 500, Treasury yields or a particular sector will rise afterwards. An election outcome can be correctly anticipated while its market consequences are still mispriced. Why? Because markets then have to process fiscal policy, yields, currencies, inflation and everything else that comes with it.
Probability of victory is not probability of price direction.
9. The other party creates deficits
Reality check: Both political parties run large deficits, and the bond market evaluates the math rather than the party in power.
With US public debt crossing US$40 trillion in 2026 and the Congressional Budget Office (CBO) projecting a US$1.9 trillion federal deficit (5.8% of GDP), the Treasury must issue massive volumes of new debt regardless of election results. Different tax and spending plans carry distinct economic consequences, but bond investors price the sheer supply of Treasuries and the cost to fund them, not campaign talking points.
Bond markets price debt supply, inflation, growth and demand for Treasuries.
10. Election volatility means something is breaking
Reality check: Election periods can coincide with higher uncertainty and volatility without signalling systemic financial stress.
Fidelity's 2026 review finds that midterm years have historically been associated with weaker returns and higher volatility before elections, followed on average by stronger returns afterwards. It also stresses that 2026 has already departed from parts of the historical pattern. And there is no rule saying uncertainty disappears once the ballots are counted. A close result, fiscal negotiations, monetary policy or an unrelated macro shock can rewrite the story quickly.
Volatility tells us that prices are moving. It does not tell us that the financial system is breaking.
The bigger reality check
Most election-market myths have the same flaw where one political variable is turned into an entire market forecast.
Elections can alter Congress, reshape expectations around taxes, tariffs and regulation, and trigger short-term volatility. But markets must still digest earnings, inflation, interest rates, Treasury debt supply and global currency flows.
When the election dust settles, the useful question is never simply: "Who won?" It is: "What changed for markets because of it?" That is where the campaign story ends and the macro story begins.
The information provided is of general nature only and does not take into account your personal objectives, financial situations or needs. Before acting on any information provided, you should consider whether the information is suitable for you and your personal circumstances and if necessary, seek appropriate professional advice. All opinions, conclusions, forecasts or recommendations are reasonably held at the time of compilation but are subject to change without notice. Past performance is not an indication of future performance. Go Markets Pty Ltd, ABN 85 081 864 039, AFSL 254963 is a CFD issuer, and trading carries significant risks and is not suitable for everyone. You do not own or have any interest in the rights to the underlying assets. You should consider the appropriateness by reviewing our TMD, FSG, PDS and other CFD legal documents to ensure you understand the risks before you invest in CFDs. These documents are available here.
Any references to Australian or international shares, sectors, indices, ETFs, crypto-related stocks or other instruments are provided for market commentary and watchlist purposes only and do not constitute a recommendation, offer or solicitation to buy, sell or hold any financial product or adopt any investment strategy. International markets may involve additional risks, including currency fluctuations, regulatory differences, market structure differences, reduced liquidity and higher volatility. Company-specific, sector-specific and macroeconomic risks may also affect performance.
Commentary on geopolitical developments, economic data, central bank decisions, earnings, policy changes and other global or financial market events is based on information available at the time of publication and may change without notice. Such events can lead to sudden market moves, price gaps, reduced liquidity, wider spreads and increased volatility, particularly in leveraged products such as CFDs. Forward-looking statements, expectations and scenario analysis are inherently uncertain and should not be relied on as guarantees of future market behaviour or outcomes.
