There is a question that serious investors return to repeatedly, and it has perhaps never felt more pressing: does politics actually matter to your portfolio, or is it simply the most expensive distraction ever invented?
Last week provided as vivid an illustration of the paradox as any we have seen. The S&P 500 advanced to close at 7,398.93, while the Nasdaq Composite climbed to 26,247.08, with both indices hitting new all-time highs. The Nasdaq rose 4.5% and the S&P 500 added 2.3%, marking a sixth consecutive winning week. Sentiment was supported by stronger than expected US labour data, with nonfarm payrolls increasing by 115,000 in April, beating forecasts. Much of the heavy lifting was done by technology stocks, with optimism around AI spending continuing to boost the sector.
All of this unfolded against a political backdrop that should, by any conventional reading, give investors pause. President Trump’s job approval rating now stands at 34%, the lowest mark of his second term. Americans feel financial strain from rising gas prices, and more than six in ten blame Trump for that increase. His war in Iran is unpopular, views of the economy remain negative, and Democrats are odds-on favourites to retake the House in November. Washington, as ever, is a study in organised dysfunction. Yet markets keep rising. The lesson is not a new one, but it bears repeating.
Across the Atlantic, the picture is similarly instructive. Keir Starmer and Labour suffered major losses in elections held across Britain last week, with multiple calls for his resignation. Labour won just over 1,000 of the seats contested, losing more than 1,100 it had previously held, while Reform UK gained more than 1,400. Whether Starmer’s determination to press on holds is another matter, but bond markets have offered calm, preferring continuity over the uncertainty of a leadership contest.
The FTSE 100 closed at 10,233 on Friday, down modestly on the week but still positive for the year. Its composition, heavily weighted toward global mining, energy, financials, and consumer staples companies generating significant revenues outside the UK, means it often acts as a global risk barometer rather than a domestic indicator. There are genuinely good businesses listed in London, and their earnings are largely indifferent to whether Westminster is in the grip of another internal Labour civil war.
The pattern repeats across Europe. Major continental markets have delivered positive returns in 2026 despite rising oil prices and geopolitical tension. Leaders across France, Germany, and Spain are struggling with public opinion to varying degrees. None of this has derailed corporate earnings in any meaningful structural sense.
So should investors care about politics at all? The honest answer is: selectively, and with considerable discipline. Regime change matters. Shifts toward significantly higher corporate taxation, changes to trade architecture, decisions about military spending, or moves that alter energy costs all have genuine transmission mechanisms into earnings and valuations. Investors who ignore these entirely are not being stoic; they are being careless.
But there is a vast difference between monitoring for structural shifts and spending meaningful energy on the daily theatre of political life. With 89% of S&P 500 companies having reported Q1 2026 results, some 84% beat earnings estimates, which is above the five-year average of 78% and the ten-year average of 76%. If 27.7% proves to be the actual growth rate for the quarter, it will mark the highest earnings growth since Q4 2021. Good businesses run by capable people are delivering. They are doing so while their respective governments flounder.
The distinction that experienced investors learn to make is between politicians, who are primarily in the business of getting elected, and business leaders, who are primarily in the business of creating value. These are not the same activity, and they do not share the same performance record. The grown-ups running serious companies are the engine of long-term returns, operating on timescales that make the political news cycle look almost trivial by comparison.
One final thought worth sitting with. Switzerland’s model of direct democracy, unique among modern nations, has long been held up as proof that giving citizens a direct say keeps politicians accountable and absorbs social tensions rather than amplifying them. It is not without complications, but it offers an interesting counterpoint to the dysfunction we observe elsewhere.
Perhaps the deepest truth is this: markets do not need good politicians. They need predictable legal systems, enforceable property rights, and capable management teams. The rest is largely spectator sport. Watch it if you must, but do not let it manage your portfolio.
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