You may not know this, but we have a presidential election this fall. (Please note this is written in my special sarcasm font). I wanted to touch on a topic I get asked about on a regular basis. Actually, I don’t get asked about it as much as people want to tell me how much better one candidate will be for the stock market vs the other. I’m never sure how they know this with such certainty, but I thought I would share some actual data.
My usual response when people make these sorts of comments to me is the market really doesn’t care which candidate gets elected. The market will and does adjust. If push comes to shove I usually have some data I can share, not that it changes anyone’s opinions.
The data I am going to use here looks at the performance of the Russell 3000, which is basically the entire US stock market. It also assumes all dividends are reinvested. Let’s turn to the data from the modern era.
- President Clinton had the best performance with an annualized performance of 16.7%.
- In second place comes President Obama just behind with annual returns of 16.5%.
- The first President Bush is in third place as the market had annual returns of 15.1%.
- President Reagan was a full percentage point behind his former VP, with annual returns of 14.1%.
- In second to last place comes our current President, with annual returns of 13.7% (through July 10th of this year).
- Bringing up the rear with a performance unlike any others is the second President Bush. The market pretty much tanked with annual returns of -3.2%. That is not a typo as he is the only President with negative returns.
If you were to go back a little further and look at the performance of the S&P500, you get this information:
- President Ford had the best annual performance at 18.6%.
- Just before him, President Nixon had worse returns with a negative annual average of 5.1%.
- From 1945 through 2014, the S&P500 averaged 9.7% annually under Democratic administrations and 6.7% under Republican ones.
- Your final bit of information shows that during this same time period the market performs the best when the Republicans control both the White House and Congress. This was followed closely by when there was a Democrat President and Congress was either all Republican or split.
The Federal Reserve did a study about 15 years ago looking at the market’s performance from 1927 through 1998. I won’t make you read this entire 43 page document, but the conclusion is “neither risk nor return varies significantly across the presidential cycle.”
If you remember back to the market’s reaction to the 2016 election it was a whipsaw response. I went to bed about 11PM on election night and stock futures were down close to 700 points when it looked like Trump was going to be elected. Over the next couple of days the market was up roughly 2.5%. Talk about a quick response by the market basically saying it would be okay regardless of who was elected.
Ultimately, the data shows us that overall the market likes both political parties and will figure out a way to go up. This is why most Presidents try to avoid claiming credit for a market that is doing well because they also have to take credit if it turns negative. Plus, they understand correlation is not causation.
So, what’s my point? If you want to vote based on hoping one party will result in a stronger stock market performance than the other, well, history shows it really doesn’t matter. Instead, you may want to vote based on other issues. Hell, just VOTE!