Money Matters

Forget who will actually win this year’s general election – what will happen to the stock market?

I got Blackrock, the fund managers, to run me some figures on what happens to stock markets in the run up to a general election and the year after.

I’d like to say there was a clear pattern that would seem to justify selling or buying, but the results were inconclusive. Actually, I’ve rarely seen figures so evenly distributed.

Since 1966 there have been 11 general elections. Looking at what happens to the FTSE All Share the year before an election, in 6 years it rose, and in 5 it fell.

The year after the general election, it rose 6 times again, and fell 5 times (note that if it rose the year before it didn’t necessarily rise the year after).

So instead I looked at which party had got in when, to see if there was a pattern there. Again, no. Labour won 6 times out of 11. The market rose in the year after Labour won 3 times, and fell 3 times.

After the Tories won, the market rose 3 of 5 years, and fell 2.

The other option is to look at what happens with a hung parliament – which some reckon is looking like a distinct possibility this year. This last occured in 1974. The market fell 18 per cent in the run up to that election – and also fell 8 per cent the year after – much of which was characterised by the hung parliament from February to October.

A second election followed in October that year – Labour got in, and the market then rose 106 per cent in the next year.

However I don’t think one hung parliament is enough evidence to go on. And obviously just looking at what the markets did based on the election leaves out all the other socio-economic factors. So in conclusion, I’d stick to an economic analysis – predicting the market is hard enough as it is.