How Political Events Affect the Markets

From the economy-bending policies of Trump 2.0 to the strengthening far-right in Europe, the new alliance between Russia and the United States, ongoing wars in Ukraine and the Middle East, and the US President’s vow to rewrite global trade rules, the markets are navigating an extraordinarily volatile period.

In recent months, we’ve seen a mix of volatility and cautious optimism, a reflection of the hand-in-glove relationship between politics and markets. Economic policies, legislative changes, and regulatory shifts – such as tax reforms, new business mandates, or national referendums – have direct consequences on investor behaviour and market performance.

The Present and On Home Soil: Federal Election 2025

On May 3, Australia re-elected Prime Minister Anthony Albanese for a second term, with the Labor Party securing an increased majority. Latest results from the AEC (as at 09/05/2025) – and with 81.68% votes counted, Labor has won 91 of the 150 seats in the House of Representatives, up from 77 in 2022. The opposition, a coalition of the Liberal and National parties, is fairly poorly – claiming only 40 seats.

With 10 seats still remaining, it’s clear that Labor’s convincing win also solidified its Senate presence, marking a significant shift in the national political landscape.

The Past and Looking Across the Pond:

When the UK voted to leave the EU in 2016, the British pound plunged and over US$2 trillion was wiped from global equity marketsⁱ. The FTSE 100 lagged behind other global indices through the Brexit period until 2020, and the exodus from the London Stock Exchange has only continued, with nearly 90 company exits recorded in 2024.ⁱⁱ

Interest rate movements and any hint of political instability can also bring about a sell off or a rally in prices, with companies holding off on capital investment and causing economic growth to slow.ⁱⁱⁱ

Elsewhere, geopolitical instability, such as Russia’s invasion of Ukraine, triggered a 30% surge in oil prices in 2022 and caused European markets to tumble.^iv Although oil prices have since stabilised to pre-war levels, gold has soared as investors seek safety amid persistent global uncertainty.

So, Do Elections Have an Effect?

Yes – though often more in the short-term than the long run. Elections almost always inject volatility into markets during campaigns and shortly after results are known. However, a review of 75 years of US market data reveals that, over time, economic and inflation trends outweigh election outcomes in influencing financial performance.^v

That said, the noisy 2024 US Presidential race, which saw Kamala Harris replace the Democratic nominee and Trump regain office, created a turbulent market landscape. Announcements on taxation, immigration, and tariffs saw investors swing between optimism and concern.

A Macquarie University study highlighted significant equity market movements around the vote.^vii Energy stocks and domestically focused small-cap equities surged on the back of expected regulatory change. However, these reactions proved short-lived, with sentiment and volatility fluctuating in the months since. The S&P 500 and Nasdaq have gained overall but not without extreme price swings.

Australia’s Position in a Global Context:

Back home, the Australian market remained relatively stable in the lead-up to our own Federal Election, overshadowed by major global events. Of greater concern to both investors and policymakers have been the unpredictability of US tariffs and their ripple effects.

Trump’s early 2025 tariff declarations on countries including Mexico, Canada, and China rattled global markets and immediately impacted the ASX 200, erasing roughly $50 billion in value. While markets partially recovered, further interest rate cuts by the RBA introduced additional volatility. In the US, some tech companies delayed or cancelled their listing plans because of the volatility and uncertainty caused by the announcements.^vii

Looking ahead, most economists anticipate that the ASX is unlikely to replicate 2024’s 7.49% annual gain. Reserve Bank of Australia Governor Michele Bullock remains cautious, citing significant global uncertainty.^viii

What This Means for You:

At Clear Sky Financial, your portfolio is designed for moments like these. We stay focused, make adjustments where needed, and guide our clients through with clarity and confidence.

If you’re watching local and world events, and wondering about the impact on your portfolio – please don’t hesitate to reach out. We’re here to help and support you. If you would like to speak to one of our financial advisers, please click here.

i Post-Brexit global equity loss of over $2 trillion worst ever -S&P

ii London Stock Exchange suffers biggest exodus since financial crisis

iii Policy Instability and the Risk-Return Trade-Off | St. Louis Fed

iv Why Financial Markets Are Sensitive to Political Uncertainty

v How Presidential Elections Affect the Stock Market | U.S. Bank

vi 2024 presidential election: U.S. equities surged, then retreated, after Trump’s victory

vii They’ve Been Waiting Years to Go Public. They’re Still Waiting. – The New York Times

viii Statement by the Reserve Bank Board: Monetary Policy Decision | Media Releases | RBA

Information contained in this document is considered to be true and correct at time of publication. In addition, the information provided is general information only, and does not take into account any individuals’ objectives, financial situation and needs. Before acting on any information contained herein, you should consider the appropriateness of the advice having regard to your personal objectives, financial situation and needs.