Presidential elections always come with a wave of market predictions. Like a carnival barker promising an easy win, market experts roll out bold claims about how investors can cash in on political outcomes. Their forecasts are often based on campaign promises, party agendas, or knee-jerk reactions to election results.

This past election was no different. With President Trump securing the White House and a Republican-controlled Congress, analysts quickly labeled the so-called winners and losers, pointing to industries poised to benefit from policy shifts and looming tariffs. It’s tempting to jump in—after all, who doesn’t love the idea of easy money?

But here’s the catch: If an investment sounds too good to be true, it probably is.

The best way to avoid getting swept up in the hype is to look back at history and see how these types of predictions have played out. So, let’s take a trip down memory lane.

The 2020 Presidential Election

Prediction: When Joe Biden ran for office, he championed a bold plan to achieve net-zero emissions by 2050, backed by a $2 trillion investment in clean energy. Investors took notice, piling into clean energy stocks, convinced they were on the right side of history. Meanwhile, traditional energy stocks were written off as relics of the past.

Outcome: The trade worked—until it didn’t. Clean energy stocks surged leading up to the election but peaked too early. The excitement fizzled into a classic “buy the rumor, sell the news” scenario. Over Biden’s presidency, traditional energy stocks outperformed clean energy by a staggering 53% per year.¹ Yes, you read that right. Investors who followed the hype saw their dollars turn into dimes.

The 2016 Presidential Election

Prediction: In the weeks (and even days) leading up to the 2016 election, nearly every poll gave Hillary Clinton a 90%+ chance of winning. Wall Street experts warned that a Trump victory would be catastrophic for the stock market. Their logic? Markets hate uncertainty, and a political outsider like Trump represented just that.

Outcome: Trump defied the odds and won. The market’s reaction? A brief panic—stocks dropped 5% overnight in after-hours trading. But by the next day, the market had not only rebounded but began an impressive rally, surging 21% over the next year. Investors who bet on disaster missed out on major gains.

The 2016 election serves as a valuable reminder to investors that, in order to profit from a trade, one must correctly predict both the outcome AND the market reaction. The market historically misjudged the election outcome and also whiffed on the market’s reaction to it. Not good.

The 2008 Presidential Election

Prediction: One of the biggest political debates of 2008 was healthcare reform. Many experts warned that President Obama’s push for the Affordable Care Act (Obamacare) would be devastating for healthcare stocks.

Outcome: The experts got it wrong—again. Not only did the market as a whole thrive during Obama’s presidency (with the S&P 500 averaging a 15% annual return), but healthcare stocks actually outperformed the broader market, returning 15.5% per year.²

Lessons from the “Trump Trade”

History has shown us that making investment decisions based on elections is risky at best. Here’s why:

1. Campaign promises don’t always materialize. Political agendas face hurdles like bipartisan gridlock, shifting priorities, or unexpected global events.
2. Market experts often miscalculate. Even if they correctly predict an election outcome, they rarely predict how the market will react.
3. Markets move for reasons beyond politics. Economic cycles, interest rates, corporate earnings, and global events have far more influence than any one election.

The Smart Investor’s Approach

The best way to avoid losing money at the casino? Don’t play. The same principle applies to investing based on election predictions. Could you get lucky? Maybe. But history suggests the odds are stacked against you.

Instead of chasing short-term speculation, focus on time-tested strategies that prioritize long-term growth, risk management, and diversification. Winning by losing less is a strategy that works—and one that helps you stay on track toward your financial goals.

As investors, we want to make informed decisions that stack the odds in our favor. When it comes to presidential elections and market predictions, that means making the prudent decision not to play the game in the first place.

Source: ¹ Edward Jones, ²Morningstar

Castle Quote: “If investing is entertaining, if you’re having fun, you’re probably not making any money. Good investing is boring.” – George Soros