Wall Street’s new partisan divide: How politics is driving investment decisions

Americans are increasingly viewing the stock market through a political lens, with a record partisan divide emerging over market expectations and investment strategies. A recent Gallup poll revealed a 47-point optimism gap between Republicans and Democrats on stock performance over the next six months — the largest such divide since the data began in 2001, the Wall Street Journal reported.

Wealth managers like David Sadkin of Bel Air Investment Advisors say political leanings now often predict clients’ investment behaviour. One wealthy couple, worried about Trump’s policies, even considered shifting all their assets abroad. “If I know how people voted, I could tell you how they feel about the stock market,” Sadkin said.

A long-standing trend accelerates under Trump

While party affiliations have long shaped how Americans perceive the economy, the divide widened significantly after Trump’s 2016 election. A University of Michigan consumer survey confirmed this trend, and researchers studying filings from investment advisers across 309 U.S. counties found Democrats and Republicans increasingly invested in different stocks starting in 2013, with the gap widening through Trump’s first term.

Red and blue portfolios emerge

Republican-leaning investors like Bruce Besten, a 68-year-old from Kentucky, see Trump’s policies as pro-business and have used market dips, such as during Trump’s tariff announcements, to buy stocks like Nvidia. Conversely, investors like Eknath Belbase, a Democrat, have reduced U.S. holdings amid concerns over Trump’s foreign policy volatility.

Funds capitalize on political loyalty

Wall Street has launched politically themed investment products, including the MAGA ETF and American Conservative Values ETF, appealing to conservative investors. However, performance varies: while the conservative-values fund has tracked the S&P 500, the MAGA ETF has underperformed by over 20 percentage points.

History favours staying neutral

Historical data suggests ignoring politics yields better returns. According to Bespoke Investment Group, $1,000 invested only under Republican presidents since 1953 would grow to about $29,000, compared to over $60,000 under Democratic presidents. But simply buying and holding regardless of political leadership would return about $1.9 million.

The case for staying the course

Some investors, like 81-year-old Ronald Gallagher, continue investing steadily regardless of who’s in power. Though he favours Trump, Gallagher held firm during Biden’s term and enjoyed strong returns. “They were OK,” he said, though he credits the gains to the market rather than the president.

Despite political tensions, the S&P 500 has rebounded from tariff-induced dips and nears all-time highs — a reminder that letting partisan views dictate portfolio moves may prove more damaging than the policies themselves.