As I’m writing this, the nation is awaiting the final outcome of the 2020 presidential election, with several states too close to call and both candidates within reach of the number of electoral votes needed. Tension is high, and many investors are wondering if the eventual president will be “good” or “bad” for their portfolio. It’s a natural thing to wonder about; after all, every candidate (for any office, not just the presidency) touts his or her platform as the one voters should choose if they want to enjoy prosperity. But research does not bear out any meaningful correlation between a particular political party and good or bad stock markets.
A recent article in Forbes indicates that Democratic presidents may actually have a slight edge, but it is far from clear that there is any cause-and-effect relationship between the party affiliation of the occupant of the White House and the performance of the markets. Indeed, given the immense complexity of the financial markets and the myriad of factors contributing to price performance, no single individual—even a US president—can make a verifiable claim to the ability to move markets one way or the other. The following chart bears this out. As you can see, since 1933, the overall trajectory of the equity markets has been upward, whether the sitting president favored red or blue.
SOURCE: Dimensional Fund Advisors, “Growth of $100: Fama/French Total US Market Research Index, March 4, 1929–June 30, 2020.” Past performance is no guarantee of future results.
For example, $100 invested in the stock market upon the election of Richard Nixon on November 5, 1968, would have had a value of $84 when his presidency ended with his resignation on August 9, 1974. During the administration of this president, typically seen as pro-business, inflation averaged around 6% and the peak unemployment rate was 6.1%. This was also the era of “stagflation,” with rising inflation despite weakening economic output, both driven in part by the oil price shocks occurring during the period. The Reagan presidency, on the other hand, would have seen the value of $100 climb to around $285 during the period November 4, 1980–November 8, 1988. This, despite a maximum unemployment rate of 10.8% and an average trade deficit of 32.4%.
On the Democratic side, the Clinton presidency—November 3, 1992–November 7, 2000—enjoyed the second-longest-running bull market in history (113 months), during which $100 would have grown to $386. During the Obama presidency, we saw the beginning of the longest bull market on record (131 months), though its total return lagged that of the Clinton presidency, with $100 growing to $266 during the period.
Of course, it can be difficult for us to separate our personal political views from our investment decisions. However, this is an important lesson on the benefits of a long-term investment approach. As history demonstrates, attempting to “time the market” on the basis of perceptions of a presidential candidate’s likely influence on the markets would have resulted in missing out on much of the growth in the value of equities during the last ninety-one years.
I provide my clients with solid, research-based investment advice, during election years and all the rest of the time, as well. If you have questions or concerns about your investment portfolio, your financial plan, or other important matters, please contact my office. And to read my recent newsletter, “Trump or Biden: Comparing the Tax Plans of the Two Candidates,” you can click here.
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