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It’s general election time! What does this mean for your favourite stock’s share price?

Well, after having his motion requesting a general election turned down three times, Prime Minister Johnson finally managed to get it passed through the House of Commons this week.

The key change was the support of the main opposition party, Labour. Previously, they did not back the request, and under Parliamentary laws this meant an election could not be held.

But now we have a date to pencil into the diary – that of Thursday 12 December. It is the first December election for almost a century, and while analysts have already deep-dived into trying to find correlations between winter elections (will the elderly be able to get to the polling stations!?) and results, this seems premature.

However, it is certainly valid to try and think ahead about what the impact could be on that stock you have had your eye on buying for the past month, or the stock you are holding but are thinking about selling.

More generally, what impact could this have on your overall portfolio?

A week is a long time in politics

First, do not make any rash decisions on buying or selling your favourite stock just because you see a large single-day swing during election campaigning. Historically, volatility on stocks (along with the currency and bond markets) has increased during election campaign periods and results. 

This can be down to the release of the latest polls from companies such as YouGov, which try to get a feel for the overall outcome of the election in advance. These can often change from week to week, as indeed a week is a long time in politics!

Further, the party leaders can often make bold promises or accusations during the campaign. This may affect a stock you hold. For example, if one leader makes the claim that they will increase the tax on cigarettes and alcohol, companies in these sectors could see a hit on the share price. Yet, this may just be a short-term reaction, as either the leader may not fulfill this promise, or indeed not get into power, making it irrelevant. 

Red or blue?

As a general rule, the Conservative Party (coloured blue) are seen as a more pro-business party due to their stance on corporation tax, regulation, etc. In contrast, the Labour Party (coloured red) are seen as more anti big business. 

On the past six occasions a Labour government won an election, the stock market fell on four. The last time a Conservative Party won, the stock market rallied. Therefore, watch out for who eventually wins, as you could see a knee jerk reaction higher or lower depending which Party does the best.

In this case, I would reconsider the stocks I hold post-election, and position for where the opportunities lie in line with the new government policy (including the stance on Brexit!).

Overall, the election itself along with the campaigning in the run up to it will likely create high volatility. Don’t make rash decisions, and look to re-balance depending on who wins.

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Jonathan Smith and The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.