No Matter Who’s in the White House, Stock Investors Win
My grandmother was on the phone, giving me her “stock market tip” of the week…
“I think this is going to be a big deal for stocks,” she told me. “Kamala Harris just raised $200 million in her first week of fundraising.”
Harris is now the Democratic presidential nominee after President Joe Biden’s exit from the 2024 presidential campaign. Her campaign shattered fundraising records after the announcement.
Now, my grandmother is sharp for her age. But she absorbs the same amount of information as just about anyone else. And she’s holding on to a classic misconception about the stock market…
We’ve already debunked this myth in DailyWealth. As I’ve shared a few times this year, the electoral horse race simply doesn’t drive stock market performance.
And the fact of the matter is, the one who wins it doesn’t drive stocks, either…
Since March 1933, America has sworn in 15 presidents. Meanwhile, the stock market has risen 79,881%.
Stocks tend to climb over time, no matter who controls the executive branch. But it would make sense if one party drove more of these gains than the other…
You might be inclined to think that Republican pro-business policies spur market outperformance, or that Democrat social programs fuel economic growth…
But the truth is, American business and American politics function in separate worlds. Bull runs and bear markets unfold in their own time, regardless of who is in office.
To investigate this, I looked at returns in the S&P 500 Index for every presidency going back to Franklin D. Roosevelt. Then, I annualized the data.
This gave me an apples-to-apples comparison of stock performance no matter how long a president stayed in office.
The chart below shows annualized stock returns by president, including party affiliation. And performance has far less to do with politics than you might assume. Take a look…
If you’re up on market history, it should come as no surprise that the stock market has performed well through most presidencies. But finding a clear pattern between stock performance and presidential party is more difficult than it seems.
For the sake of argument, let’s try to draw a few conclusions about the data…
You’ll notice Democrats have never been in power for a stock market fall. But Republicans presided over three. This gives Democrats a significant edge based on average annualized returns. Take a look…
Stocks have performed more than twice as well under Democratic presidents as they have under Republicans. So based on the data above, you might conclude that the Democrats are the better party for stocks.
But again, this would be an oversimplification… because we can’t know whose policies are driving market gains.
For example, take the 25% annualized return during Bill Clinton’s presidency. Should we credit the gain to Clinton himself? Or was it the conservative economic policies of his predecessors – Ronald Reagan and George H.W. Bush – taking effect?
Or was it simply a case of “right place, right time” as the dot-com boom took over the market?
There’s no way to know for sure. And anyone who says otherwise is probably pushing a political agenda.
In short, don’t obsess about how U.S. elections will impact the market. It’s much more important to buy when the bull run is on.
We’re in the midst of one right now. Even with the recent pullback, the market is up roughly 30% since bottoming last fall. So no matter who takes office this November, you want to own stocks today… because history says the uptrend will probably continue.
Good investing,
Sean Michael Cummings
This article was originally published on this site