Ask two investors about any event in financial history, and you might think they lived through different realities. A momentum investor, for example, might point to today's tech-driven rally as proof that the trend is still your friend, while a value investor, well, they're still waiting for the market to remember what a price-to-earnings ratio is.
History doesn't have a single story. There are as many versions as there are portfolios. Look at U.S. history through the lens of factor investing, and the lessons become sharper and far more useful.
Maybe include a quick definition of factor investing here and list the most common types
Let's talk about what recessions, elections, and geopolitical shocks reveal about how factors behave, and why multifactor investing may be the steadiest way through it all.
How Factors Perform Before, During, and After Recessions
Recessions are the market's stress tests, and each factor reacts differently under pressure. Research from Bridgeway Capital Management2 has shown that factors haven’t moved in lockstep across previous economic cycles. Some held firm as the storm approached, while others performed best in the recovery.
The Defensive Factors
Think of low volatility and quality factors as the steadying elements in a portfolio. They rarely make headlines, but investors appreciate them when times get tough. As dark economic clouds gather on the horizon, these factors should tend to cushion the fall. Quality companies with strong balance sheets and reliable earnings often have more latitude to weather a downturn.
The Laggards that Can Rebound Quickly
Value and size factors often tell a different story. They can lag heading into trouble, then surge once the recovery takes hold. Analysis from Russell Investments3 points to a familiar pattern: cheaper, smaller companies frequently rebounded hardest when confidence returned, because they had the furthest to fall in the first place.
The obvious conclusion is that no single factor outperforms in every market. The defensive factors offer protection on the way down, while value and size can be rewarding on the way up. Investors who own multiple factors should rarely be caught fully off guard.
Factor Performance During Elections and Midterms
Every election cycle, the financial media insists the market is about to swing wildly based on who wins. And every cycle, the market mostly reminds investors that it cares more about earnings than which political party triumphs.
Nonetheless, election years have demonstrated a distinct rhythm. Uncertainty tends to build in the months before election day, then eases once results are known. This has happened regardless of the outcome. That pattern has shown up in factor behavior too.
Pre-Election Jitters
In the run-up to election day, investors often look for stability. Low volatility and quality factors tend to shine here, as nervous money seeks a safe harbor. It's the financial equivalent of buying an umbrella when rain is in the forecast.4
Post-Midterm Relief
Midterms deserve special mention. Historically, markets tended to rally in the twelve months following midterm elections, as one major source of uncertainty was removed.4 When that relief rally arrives, more cyclical factors like value and size could catch a second wind.
The lesson is that different factors carry the load at different moments. A diversified factor mix lets investors participate no matter which way the political winds blow.
Factor Performance During Geopolitical Events
Wars, trade disputes, and black swan crises are events no analyst can forecast. They often materialize without warning and test every investor's nerves.
Here's an encouraging fact to remember: as of December, 2025, the S&P 500 has returned roughly 10% annually over the previous 40 years5, and that figure already includes world wars, oil shocks, and countless "this changes everything" headlines. The market has absorbed enormous turbulence and volatility and still continued on a steady march upward over time.
During periods of acute geopolitical stress, defensive factors have tended to earn their keep. Quality and low volatility acted like ballast, steadying the ship in a churning sea. Momentum, meanwhile, can be a double-edged sword. It’s great when a clear trend forms but punishing when markets seesaw with each new surprise.1
Consider how quickly sentiment can turn. A high-flying name that went viral simply by adding "AI" to its story can enjoy rocketing momentum one quarter and crater the next when reality catches up. That whiplash is exactly why relying on any single factor during chaotic times is ill-advised.
Why Factor Investing Exists in the First Place
Let's address a common misconception. Factor investing has never been about predicting the next recession, calling the next election, or dodging the next crisis. No one has a crystal ball.
The real purpose is more subtle and more powerful: smoother performance and better diversification. When investors combine factors that zig while others zag, they build a portfolio designed to endure across markets.
The Case for Combining, Not Choosing
A boat powered by a single oar just spins in circles. Add rowers on both sides, each pulling at the right moment, and suddenly there is direction and momentum. Multifactor investing works the same way. Value and quality, momentum and low volatility: each pulls hardest at a different point in the cycle, and together they keep the portfolio moving forward.
That's the beauty of the approach. Investors can stop trying to guess which single factor will lead next year, and instead own a blend built to perform across recessions, wars, and elections alike.
The Takeaway
American market history looks different depending on which factors an investor has owned. Momentum investors cheer the AI boom, while value investors enjoy post-recession rebounds. However, the investors who fare best rarely bet on a single story.
Recessions reward defense on the way down and value on the way up. Elections favor stability before the vote and cyclicals after. Geopolitical shocks call for ballast. No one factor covers every scenario, and that’s exactly why combining factors in a multifactor strategy is a good idea.
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