Doom Loop: Definition, Causes, and Examples

Elections may influence the stock market. However, the political party in charge of the executive and legislative branches might not matter to equities markets. This may be surprising given the differences between how parties approach fiscal policy.

Investopedia reviewed historical elections to see what patterns form. We examined the link between a president’s party affiliation and market performance. We also looked at what happens when the U.S. president enjoys the full support of Congress by having his party control the House of Representatives and the Senate; and what happens during a split Congress when only one chamber is controlled by the president’s party.

Key Takeaways

The two main U.S. political parties have very different approaches to fiscal policy, which could influence stock market performance.
Investopedia examined elections, looking for patterns in how markets react.
Investopedia found that the party in power seemed to have a negligible impact on the direction of the U.S. stock market over time.

How We Assessed Elections’ Market Impact

Investopedia reviewed the Dow Jones Industrial Average (DJIA) as a proxy for the general stock market. We monitored its level at the beginning of October—one month before a November election—and again at the end of March the following year. This period begins while election outcomes are still relatively uncertain. It concludes after a president has been sworn in and the new congressional session has started.

We analyzed the connection between the president's political party and market performance, and whether Congress is split or completely controlled by one party. In the 62 congressional sessions since 1900, just over half (35) represented unified governments, meaning that the same party controlled the White House, the U.S. Senate, and the U.S. House of Representatives. However, since 1980, only seven of the 22 sessions of Congress have been a unified government.

One Party

2024-2025: Donald Trump was elected for a second presidency in 2024 and secured a "governing trifecta." In early October 2024, the DJIA posted as 42,262. By the end of January 2025, the DJIA was 44,850, an increase of 6%.

2020-2021: Joe Biden was elected president in 2020. Upon taking office in 2021, his party, the Democrats, controlled Congress. In early October 2020, the Dow Jones was at around 28,150. By the end of March 2021, the DJIA climbed to over 33,000, a more than 17% increase.

2016-2017: In 2016, Republican candidate Donald Trump was elected president and enjoyed a Congress controlled by his Republican Party when he took office in 2017. In early October 2016, more than one month before the election, the DJIA was at around 18,250. It climbed over 12% to reach more than 20,500 by the end of March 2017.

2008-2009: In 2008, Democrat Barack Obama was elected president and enjoyed the support of a Congress controlled by Democrats. In early October 2008, the DJIA was around 10,800, but by the end of March 2009, it had fallen about 30% to nearly 7,500. However, this period marked the financial crisis sparked by subprime mortgages, known as the Great Recession in the United States. The situation in the United States contributed to a global crisis. March 6, 2009, was the stock market's low point, and our methodology measures the market just weeks later.

2004-2005: George W. Bush was reelected president in 2004. His Republican party controlled both chambers of Congress. In early October 2004, the Dow Jones sat at around 10,200. By the end of March 2005, little had changed, and the Dow closed at around 10,500, an increase of nearly 3%.

1992-1993: In 1992, Democrat Bill Clinton was elected president, and voters gave control of Congress to Democrats, creating a unified government. The DJIA climbed over 7% from around 3,200 in October 1992 to 3,450 by March 1993.

Fast Fact

Based on the data reviewed by Investopedia, the stock market reacted well to a unified U.S. government, except for 2008 during the global financial crisis.

Democratic President, Republican Congress

Republicans controlled Congress in 2014, President Obama’s second term. The DJIA posted 16,800 points in early October and climbed to just shy of 18,000 by the end of March 2015, an increase of over 7%.

In 1994, a similar increase occurred during President Clinton’s first term in office. The DJIA was around 3,800 in early October 1994 before the midterm election, but subsequently climbed over 9% to 4,150 by late March 1995 after Republicans took control of both houses of Congress.

Democratic President, Split Congress

In the midterm elections of 2022, President Joe Biden's Democratic party lost control of the House of Representatives, creating a divided government. The DJIA rose from roughly 29,500 in early October 2022 to 32,800 by March 2023, an increase of over 11%.

In 2012, Barack Obama was elected for a second term, and a split Congress with Republicans controlling the House of Representatives and Democrats having a majority in the Senate. In this period, the stock market climbed. In early October 2012, the DJIA was around 13,500 and rose 7% to 14,500 by the end of March 2013.

There was also a split Congress following the 2010 elections when the DJIA climbed nearly 14%—from around 10,800 in October 2010 to just over 12,300 by the end of March 2011.

Republican President, Democratic Congress

Markets have reacted well with a Republican in the White House and Democrats controlling both houses of Congress. In 2006, in the middle of Republican President George W. Bush’s second term, the DJIA climbed about 5.5% from around 11,700 in October 2006 to around 12,350 by the end of March 2007 after Democrats took control of Congress.

Similarly, in the 1990 midterms, with Republican George H.W. Bush in office, and Democrats maintaining their control of both houses of Congress, the DJIA climbed 16% from around 2,500 to about 2,900 in March 1991.

Republican President, Split Congress

A Republican president presided over a split Congress after the 2018 midterm elections under President Trump. Democrats took control of the House of Representatives during that election. Around this time, DJIA fell almost 3% from around 26,650 to around 25,900.

In 1984, Republican President Ronald Reagan was elected to a second term. In that election, Democrats controlled the House of Representatives while Republicans controlled the Senate. In October 1984, the DJIA posted at 1,200 and climbed 5% to 1,260 by March 1985.

Does the Election of a President Affect Stock Prices?

While it seems that the usually divergent fiscal policies of the two main U.S. political parties should impact financial markets, data suggests that the party running the country makes no clear difference in U.S. equities markets.

How Do U.S. Stock Markets React to a Unified-Party U.S. Government?

Based on historical data, the stock market, using the Dow Jones Industrial Average (DJIA) as a proxy, often reacted well to a unified government, except in 2008 during the global financial crisis.

Do Stock Markets Go Down When a Republican President Is Paired With a Democratic Congress?

Based on Investopedia's research, the U.S. stock market (via the DJIA) may look positively on a Republican presidency balanced by a Congress controlled by Democrats.

The Bottom Line

While it seems that the often drastically different fiscal policies of the two main U.S. political parties should influence markets, data suggests that the president's party has little effect on performance over time. When Congress is controlled by the opposing party, markets react similarly to a unified government.