Investing through uncertainty

Election years and political shocks have always created uncertainty for investors. Today is no different.

Recent headlines surrounding Trump-era tariffs, tensions and conflict involving Iran, and the latest UK election cycle have all contributed to short-term volatility and investor anxiety. Markets dislike uncertainty, and political events often create exactly that.

We’ve seen this repeatedly over the past year. Announcements around new US tariffs triggered sharp market swings and fears of slower global growth, while escalating tensions in the Middle East pushed oil prices higher and unsettled global markets. In the UK, investor concerns around fiscal policy and political stability following the recent election period also created periods of volatility in bond and equity markets. And yet, when we zoom out and look at the long-term data in the charts below, a much clearer pattern emerges.

The first chart shows the growth of the US stock market through almost a century of Democratic and Republican presidencies. Despite wars, recessions, inflation crises, tariff disputes, political scandals, and major geopolitical events, the long-term direction of markets has remained remarkably consistent, upwards. Political leadership has changed many times, but businesses have continued to innovate, adapt, and grow.

Source: dimensional.com

The same is true in the UK. As the second chart highlights, the FTSE All-Share Index has delivered long-term growth under both Conservative and Labour governments since the 1950s. Different parties have introduced different policies, budgets, and economic approaches, but the broader trend for long-term investors has remained positive.

Source: dimensional.com

This doesn’t mean politics is irrelevant. Governments can absolutely affect markets in the short term. Tariffs can disrupt trade, wars can push up energy prices, elections can alter investor sentiment, and policy changes can impact specific sectors. We are seeing examples of that play out right now. But history suggests that these events tend to influence markets temporarily rather than permanently.

Over time, markets have generally been driven more by human progress than by political cycles alone. Innovation, productivity, technological advancement, and the ability of companies to grow earnings have historically mattered far more than which party happens to be in power at any given moment.

That is why successful long-term investing has rarely been about reacting to every headline, election result, or geopolitical scare. Political noise is constant, there will always be another tariff announcement, another conflict, another election, or another prediction about what markets will do next. But history consistently shows that investors who stayed disciplined and resisted the temptation to make emotional decisions during periods of uncertainty are often the ones rewarded.

If you wish to speak to one of our financial planners about this or anything else, please email enquiries@carbonfinancial.co.uk