General Elections: Investor confidence and Stockmarket ups and downs

20 April 2015

Despite over half (58%) of investors thinking that the FTSE 100 will fall in the run up to the election next month, share prices have been unchanged, on average, ahead of the past 11 general elections, according to the latest research by Halifax Share Dealing.

Pre-election impact

Stockmarket values declined in the three months before polling day in six of the last 11 elections, falling by an average of 9%. Prices increased by an average 10% on the other five occasions.

There has been relatively little change in stockmarket values ahead of general elections since 1992, but during the 1970s and 1980s, double digit percentage changes in share prices occurred in the three months ahead of five of the six elections. The largest decline in share prices (-26%) pre-election took place ahead of the October 1974 election when Labour won with just a three seat majority. The biggest rise (+24%) happened in the run-up to the May 1979 election when Margaret Thatcher came into power.

Post-election impact

On average, share prices have fallen modestly (-2%), in the three months following the past 11 general elections. Stockmarket values increased in the three months following polling day after seven of the last 11 elections, rising by an average of 5%. The biggest increase was after the Conservative's surprise victory in 1970 when shares rose by 10%.

The size of the overall majority achieved by the winning party, rather than the political complexion of the winner, has typically had a bigger impact on share price performance. Over the years, the stockmarket has performed marginally worse in the immediate period following a Labour victory. There was an average fall of 6% after the five Labour wins compared with a 1% average rise following the six Conservative victories.

Investor expectations for 2015

According to the latest Halifax Share Dealing Market Tracker, over half (58%) of investors think the FTSE 100 will fall in the run up to the General Election and one in 20 (6%) think that it will continue to climb. Just over a third (35%) of investors thinks that the General Election will have limited impact on the FTSE 100.

Short term optimism for the FTSE 100 has plummeted significantly, with half (50%) of investors expecting it to decrease in the next month, compared to 18.4% in January.

Medium term and long term optimism has also decreased, with over a quarter (25.5%) of investors agreeing the FTSE 100 will be lower in six months time, an increase of 16% on January. 17.1% of investors believe the FTSE 100 will be lower in 12 months time, an increase of 43% on January.

Investor performance

Energy and mining stock and financial services are now the joint most popular choices for investors and looking ahead both of these industries are also top of the wish list for future investments, being the key sectors investors are looking to invest in over the next six months (energy and mining 45.4%of investors and financial services 39.9% of investors)

The performance of investor’s portfolios has continued to improve throughout 2015, with three out of five (61.3%) agreeing that their investments had risen in the past six months, compared to just under half (48.9%) in April 2014. The number of investors stating their portfolio had fallen was at the lowest it has been for nine months, at just 15.2%.

Joel Ripley, Halifax Sharedealing, said:

"It is surprising that despite the investor performance continuing to improve, optimism for the short, medium and long terms have all decreased. It could well be down to uncertainty around the impact of the upcoming electon, with over half (58%) of investors believing the FTSE 100 will fall in the run up to the election.

“However, history shows that overall there has been little change in share prices either in the run-up, or in the period shortly after an election over the past 45 years, although there have been some significant variations between particular elections. In the face of any type of market uncertainty, it remains important for investors to do their research and understand the markets.”