Article: Thursday 29 October
This blogpost from Dr Thomas Lambert associate professor of finance at Rotterdam School of Management, Erasmus University (RSM), and Shiwei Ye, a former PhD student in finance at RSM and now assistant professor of finance at the University of Groningen, revisits how stock markets react to US elections. With the midterms coming up on 3 November, they look back at what happened when a similar election shock hit the market twice.
Two years ago, in the run-up to the 2024 presidential election, Thomas Lambert wrote an article for RSM Discovery about how the US presidential election impacts the stock market, using Donald Trump's surprise win in 2016 as the example. He ended that piece with: “Let's see how stock markets react in the aftermath of 5 November 2024.” We now know. In new research, Trump Reloaded: Pricing a Repeated Political Shock, co-authored with Prof. Alexander F. Wagner and Dr Alexandre Ziegler from the University of Zurich, Lambert and Ye compare the two Trump victories side by side. The short answer: investors priced the same winners and losers again, but the second time they did it almost overnight.
Elections move stock prices because they change what investors expect about taxes, trade and regulation, and therefore about companies' future profits. When the result comes in, investors and researchers want to know two things: which companies win and lose, and how quickly share prices will show it. The second question matters as much as the first. If prices adjust at once, the first day's reaction is a good guide to what the new policies are worth for each company. If they adjust slowly, the first day tells only part of the story, and quick investors gain at the expense of slow ones. In 2016, as Thomas noted in his earlier piece, prices adjusted over several days, and the more complex a policy's effect, the longer it took.
Why was the market slow? A natural answer is that investors had never seen this news before. They had to work out which promises would become law and which companies they would hit. If that is right, experience should speed things up. This is hard to test, because the news is never the same twice. Each election brings a new candidate, a new platform and a new economy. To see whether investors learn, researchers need the same news to arrive twice.
Trump's two victories are an exception. In 2016 and 2024 the same candidate won on a broadly similar agenda: lower corporate taxes, higher tariffs on imports, and lighter regulation. The difference is that by 2024 investors had watched that agenda in action for four years, including the 2017 Tax Cuts and Jobs Act and the tariff rounds of 2018 and 2019. That makes the two elections something close to a natural experiment. If investors learn, the second reaction should look like the first, only faster.
We studied around 2,500 US firms in the Russell 3000 index on each occasion, tracking their returns relative to the market on the first trading day after each election and over the following two weeks.
In 2024, the market picked much the same winners and losers as in 2016. Coal, steel, oil and gas, wholesale and machinery were among the strongest industries on both occasions. Consumer-facing industries such as apparel, beverages and food were among the weakest. Industry returns in 2016 explain more than a quarter of the variation in industry returns in 2024, eight years later and in a very different economy. Ranked by their returns on the day after the Biden’s victory in 2020, industries lined up in a different order, so the pattern follows the candidate and his platform rather than elections in general.
The same holds at the level of firms’ characteristics. Companies with higher effective tax rates, which stood to gain most from corporate tax cuts, outperformed in both elections. Highly leveraged companies underperformed, because lower tax rates make interest deductions less valuable.
Firm characteristic (relative to industry peers) | Day-one return, 2016 | Day-one return, 2024 |
|---|---|---|
| Effective tax rate 10 points higher | +0.22% | +0.71% |
| Leverage 10 points higher | -0.40% | -0.68% |
| More liberal workforce (+0.10 on a 0-1 scale) | -0.11% | -0.33% |
| Foreign revenue share 10 points higher | -0.14% | no effect |
The 2024 day-one numbers are larger even though the 2024 result was less of a surprise: betting markets and forecasters gave Trump much better odds than in 2016, as Thomas anticipated in his earlier piece. For taxes and leverage, though, the larger 2024 numbers mainly reflect timing. Once we allow for the smaller surprise, the total effect over three and ten days is statistically similar across the two elections. Investors simply priced it all on the first day.
One prediction from Thomas's earlier article did not hold. He expected firms with more foreign sales to lose again on the prospect of a trade war. They did in 2016, but not in 2024. A plausible reason is that the Harris platform kept the Biden administration's tariffs on China, so the two candidates differed less on trade than Clinton and Trump had.
In his 2024 piece, Thomas suggested that firms ideologically aligned with the winning party could see greater returns. The data bear this out. We measure the political leaning of each company's workforce from employees' political donations. Firms with more conservative workforces outperformed after both Trump victories.
What changed is the size of the effect. Depending on the horizon, a liberal workforce cost a firm 1.6 to 3 times as much in 2024 as in 2016, and unlike taxes and leverage, this gap remains after accounting for the smaller surprise. Several forces may be at work: firms with liberal workforces may be less connected to a Republican administration, may expect less favourable treatment in procurement and regulation, and face customers and investors who increasingly sort along partisan lines. Political polarisation in the US has risen sharply between the two elections, and the campaign in 2024 made corporate politics an explicit target, for example with its pledge to act against ESG investing.
In short, a company's political profile has become something investors price, and price more heavily than they did eight years ago.
The most striking difference between the two elections is speed. In 2016, the market needed several trading days to work out what a Trump presidency meant for each company. In 2024 most of that repricing happened on the first trading day.
Take the effective tax rate. In 2016, the first day's reaction accounted for only 28% of the total effect over the following two weeks. In 2024 it accounted for 92%. Leverage built up gradually through the 2016 window but was fully priced on day one in 2024, even overshooting slightly before settling.
The disappearance of post-election drift tells the same story. A simple strategy that bought the biggest day-one winners and sold the biggest day-one losers earned 7.7% within three days in 2016. In 2024 the same strategy earned nothing. There was simply nothing left to trade on.
Workforce ideology is the partial exception. It was also priced modestly faster in 2024 (69% on day one, against 64% in 2016), but the speed-up was much smaller than for taxes and leverage. That fits the learning story: investors could quickly price what they already understood, but the higher price of ideology was itself new information and took longer to absorb.
Could faster trading technology explain the speed-up instead? If so, the gains should be concentrated in large, liquid stocks, where algorithmic trading is most active. They are not: the acceleration is similar for small, mid-sized and large firms. The most natural explanation is that investors learned from Trump's first term.
The midterm elections do not change who sits in the White House, but they do decide whether the president's agenda can pass Congress. That makes them another test of the same idea. The exposures that mattered in 2016 and 2024 (taxes, leverage and the political leaning of a company's workforce) are the ones to watch on 4 November, the first trading day after the vote.
Our findings suggest two things to expect. First, the size of the reaction will depend on the size of the surprise: an outcome the polls and betting markets already anticipate will move prices little. Second, investors now have years of experience with this agenda, so whatever news the midterms bring is likely to be priced within hours rather than days. For investors hoping to profit from a slow market reaction, the window is likely to be very short.
The broader lesson goes beyond Trump. Markets price a familiar politician the way they price familiar news: on arrival. The first time a political shock hits, investors have to work out what it means. The second time, they already know.
This blogpost is based on the working paper Trump Reloaded: Pricing a Repeated Political Shock (November 2026) by Thomas Lambert (Rotterdam School of Management, Erasmus University), Alexander F. Wagner (University of Zurich), Shiwei Ye (University of Groningen) and Alexandre Ziegler (University of Zurich). The study covers Russell 3000 firms around the 2016 and 2024 US presidential elections.
Science Communication and Media Officer
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