Historical Trends: How Australian Markets React to Elections

Elections are integral to any nation and influence economic policies, enterprise sentiment, and investor confidence. Australia’s federal elections have historically been recognised by increased market activity and often short-term volatility as investors assess potential changes to policy and economic direction.

But how do elections impact the Australian stock market? Do certain political parties tend to create more favourable market conditions? And what can historical data tell us about investment strategies during election cycles?

Election campaigns can create uncertainty, but market movements depend on more than just the outcome of the election. A combination of fiscal policies, global economic dynamics, and investor expectations are the major factors that determine the market’s response.

This article takes a deep dive into historical trends, analysing how the ASX has performed before, during, and after elections, and what investors can learn from these patterns.

 

How Do Elections Influence Market Sentiment?

Elections determine the tide of any eventual market, as stock markets are forward-looking and often price in opportunities rather than reality. Investors focus on policy proposals, such as tax cuts, deregulation, infrastructure spending, and globalisation, because these directly impact businesses and drive economic growth. Uncertainty over new policies and leadership can move the markets, presenting both opportunities and risks.

One of the most important factors influencing investor confidence is political stability. Markets hate uncertainty, and a close-run election can bring short-term volatility. When a result is clear and predictable, investors generally react more positively, while uncertainty—such as prolonged vote counting or disputed results—can prompt swings.

The candidates’ proposed economic policies also weigh heavily on market sentiment. Corporate taxes, labour laws, and government spending can shape business profitability and economic conditions. Markets usually favour pro-business policies that encourage economic growth, while sell-offs typically follow fears of excessive regulation, higher taxes, or protectionist trade policies.

Some sectors are highly sensitive to outcomes from elections because of sector-specific policies. Energy and mining companies adjust to changes in regulation and the environment, banks respond to financial oversight policies, and healthcare stocks react to changes in public healthcare and insurance reforms. New policies can have wide-ranging implications for various sectors, prompting investors to adjust their strategies accordingly.

Historically, markets have rallied when business-friendly policies are expected, given their ability to enhance investor confidence and corporate earnings prospects. However, uncertainty or policies seen as hostile to business can tip markets into reverse. Although elections can result in temporary fluctuations, the long-term trends of a given market are determined by larger economic fundamentals and global market forces.

 

How Has the ASX Performed During Past Elections?

Elections add an element of uncertainty to financial markets, and the Australian Securities Exchange (ASX) is no different. Voting aligns with existing political preferences, and market volatility fluctuates widely in response to expected policy changes, which is why markets flare up around election results. By looking at what has happened in previous elections, we can see patterns of how the ASX has responded and if the markets incline in favour of a political party.

Election-Year Volatility: A Common Trend

Volatility is the hallmark of the Australian election years. The ASX often moves in response to investors weighing potential changes to government policies, tax regimes, and economic approaches.

For example:

• 2019 Federal Election: The market moved to uncertainty about Labor’s proposed changes to the franking credits, which mainly affected retirees and self-funded investors. The ASX rallied on the Coalition winning, with relief showing up in a bounce in banking and financial stocks.
• 2013 Federal Election: The Liberal-National Coalition won, under Tony Abbott, against the Labor government of Kevin Rudd. The markets reacted favourably, particularly for the mining industry, looking forward to deregulation and pro-business policy.
• 2007 Federal Election: Labor, led by Kevin Rudd, defeated the Coalition led by John Howard after a long-sitting government. However, it is hard to establish with certainty that movements in the market were directly linked to the election result, as the election occurred around the same time as the first stages of the Global Financial Crisis (GFC).

The pattern suggests that while elections introduce short-term volatility, post-election clarity often leads to a market rebound, particularly when policies favour business confidence and economic stability.

 

Does the Market Prefer Liberal or Labor Governments?

There is a widespread belief that the ASX has historically outperformed when there is a Liberal-National Coalition government in power, due to their focus on pro-business policies, lower taxes, and economic deregulation. Labour governments, on the other hand, are generally linked to ramped-up public spending, social welfare, and regulatory mechanisms—policies that many investors perceive as unfriendly to markets.

Historical examples include:

• John Howard’s Coalition Government (1996-2007): The ASX doubled during Howard’s reign, backed by a mining boom and a stable economy.
• Kevin Rudd’s Labor Victory (2007): Labor’s win was followed by the GFC, creating a huge market downturn. Although this was a global crisis, not directly the result of Labor’s policies, it nonetheless influenced investor sentiment during Labor’s time in office.
• Scott Morrison’s Re-Election (2019): The re-election of the Morrison government put investors’ minds at ease, and the market rallied after Morrison’s victory. Financial stocks gained on hopes for stability in policy, tax relief, and continued support for economic growth.

Despite these trends, markets do not always tilt one way or the other for a given party. The ASX is subject to wider dynamics, including international economic conditions, commodity prices, interest rates, and investor sentiment. While political policies are significant, they only play a partial role in deciding market performance.

 

Sector-Specific Reactions to Elections

Different sectors have different sensitivities to elections; some are more responsive to policy changes than others. Market fluctuations will be observed by investors based on key announcements, which will affect a specific sector.

Mining & Resources

The mining sector thrives when policies encourage exports and minimise regulatory burdens. For example, when Tony Abbott’s Coalition repealed the controversial mining tax in the 2013 election, high-flying mining stocks boomed. On the other hand, the 2022 election with the Labor government brought concerns about stricter environmental policies, but renewable energy stocks took off.

Banking & Financials

Taxation, housing, and interest rate changes affect the financial sector. The proposed changes to negative gearing and franking credits in 2019 created uncertainty in the market, but bank stocks rebounded when those proposals were dismissed after the Coalition victory. Likewise, the 2022 election received mixed reactions, as policies related to housing reform and banking reform had different effects.

Healthcare & Pharmaceuticals

Labor’s focus on funding and aged care reforms is generally positive for healthcare stocks. This sector experienced gains in the 2022 election, with the new government pledging further activity in public health services, compared with periods of volatility in earlier years linked to legislative tussles regarding health insurance policy.

Property & Construction

Tax policy can have a dramatic impact on the property market, especially tax incentives surrounding homeownership and negative gearing. In 2019, there was uncertainty over proposed changes, with property stocks slumping until a Coalition win restored confidence. The 2022 election had mixed implications for the sector, with optimism over affordable housing initiatives dampened by fears for large real estate investment trusts.

 

Post-Election Market Trends

Election campaigns usually introduce uncertainty, but once results are known, markets generally stabilise. Election day, in particular, can be a bumpy ride, and volatility can ramp up as investors react to the outcomes of potential policy changes. However, historical evidence indicates that the ASX and other leading equity markets tend to stabilise over 12 months post-election. The initial response may be blunt, but markets tend to stabilise in the long run.

A major post-election trend has been sector rotation, with investors repositioning based on the anticipated policy shifts ushered in by the new government. Areas that would benefit from supportive policy could attract new investment, whereas sectors at risk of regulatory action could sell off in the short term. This makes the market driven not just by who wins elections, but also by how fast and effectively the new government implements its economic program. After the 2022 federal election, the market fell straight afterwards. However, confidence in the new government’s economic policies improved, and stability returned, showing how investor sentiment is moulded by both political change and economic execution.

 

What Can Investors Learn from Historical Election Trends?

History tells us that election-related volatility is normal, and investors should be ready for market swings without acting rashly. Despite this, uncertainty will always lead to short-term surges, but markets have always shown resilience and the ability to recover.

Picking sectors is a key part of an investment strategy. Some sectors, such as infrastructure, healthcare, and energy, are sensitive to political changes. Insights into the effects of varied policies on distinct sectors could allow investors to strategise and leverage potential opportunities.

Over the long term, fundamentals eventually win out, despite short-term movements. Markets have weathered election-induced volatility in the past, reiterating the value of patience and a disciplined approach to investing. As an investor, you will certainly have consistent returns if you focus on economic indicators rather than political speculation.

Diversification is still a mainstay of risk management during political transitions. A diverse portfolio of various asset classes and industries helps absorb the shock of sudden market fluctuations. Investors may also be unable to escape unpredictable election-related market moves, but by diversifying their investments across multiple sectors, they can mitigate this risk.

The best thing investors can do is to stay informed while ignoring short-term election noise. Although political cycles may create headlines and short-term market volatility, the best chance of thriving after the election will always be a disciplined investment strategy—from research and diversification to long-term growth.

 

Conclusion

Elections create market volatility, but history shows that long-term investors who focus on economic fundamentals rather than the noise of short-term events tend to be successful. In the long term, while ASX volatility tends to be evident during election years, this has little or no bearing on the overall trajectory of the market, which is determined by broader economic factors, global trends, and corporate performance.

In our view, wise investors consider election cycles but don’t let them govern their entire investment focus. There are many historical trends to consider, and while we can learn from the past, in the end, a well-researched, diversified approach will carry you through election-related uncertainty.

 

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