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In case you have been living under a rock, the election day is fast approaching on November 8th. I can only assume that most of us will be relieved when this election cycle is over. Maybe I’m too young to fully remember, but it seems like the political battles are becoming nastier and nastier and the tone of the candidates, more vitriolic by the day. In terms of the economy, I hear different people touting different scenarios with each candidate. Through this process, I became increasingly curious as to whether the stock market would react particularly favorably if a Democrat or a Republican took office.
Democrats vs. Republicans
If you google “Democrat vs. Republican Stock Market”, there are 501,000 results. Interestingly enough, if you google “Republican vs. Democrats Stock Market”, there are 457,000. I don’t know if more investors are Democrats, but I thought this little tidbit was interesting. Anyway, through my research, I was able to find this awesome chart by Forbes providing the breakdown of each President since 1929.
As you can see, a Democratic President has a 9% edge in comparing the S&P 500 Annualized Return during the 4-year term. While researching, I stumbled across a paper by the Federal Reserve in 2004. It included a Democratic President outpacing a Republican President with small cap stocks by 16% for the same time period.
On top of that, the only time two consecutive 4-year periods of negative returns occurred was under a Republican President (GW Bush). A Democratic President remarkably has never presided over more than one 4-year period of negative returns.
It’s also incredibly interesting that George W. Bush’s Great Recession only yielded a negative 7% annualized return, compared to FDR’s. I wasn’t even aware that the US went into a recession until seeing the annualized return of -12% on the chart above.
Before the S&P 500
One thing to note though is that the chart above only provides data since the S&P 500 Index launched. During the Presidencies of Harding and Coolidge (1921-1928), both Republicans, the Dow Jones INCREASED by 320%. In comparison, under the Hoover Administration (Republican), it decreased by 80%.
So given the information above, it would seem obvious to vote for a Democrat to see your stock portfolio increase. No-brainer, right? As Lee Corso likes to say, Not so fast my friend.
No Conclusive Evidence?
The paper I referenced above states that there is indeed no conclusive evidence that the President’s party has any statistically significant impact on U.S. stock market.
If you think about it for a minute though, it makes sense because the stock market is not influenced solely by the President. As we become more of a global economy, each day we are influenced by a variety of factors such as business cycles, monetary policy, wars and other countries’ economies. Did you know that the S&P 500 generates more than 50% of revenues outside the U.S.? Check out this chart by Steve Goldstein.
The stock market is a complex system in which cause and effect are not easy to figure out. Believe me, if a President and his or her economic team could figure this out, I think most American citizens would vote this party to stay in power forever. So, I believe all this data is pointing to correlation but not causation.
Market Bottom
Take a look at this final chart. It shows when the market bottomed during each Presidential term.
Based on the data, you can see the market seems to bottom out close the the 2nd year of the President’s term. For those individuals who try to time the stock market (I’m definitely not one of them), the data suggests it will be mid-October 2018 when it will be optimal to buy at the bottom of the stock market.
My Plan
As an average investor, I will not be making any adjustments to my portfolio based purely on the election results. Instead, I will be focusing on things that I can control such as my savings rate, investing in excellent companies, and ignoring the bluster in DC.
Will you adjust your portfolio based on the candidate elected? Share your thoughts below.
Wow, wouldn’t have guessed that first figure would show such a huge difference. Nonetheless, I’m not going to change the way I invest based on which party wins. I’m more inclined to agree with your final thoughts around how stock markets are influenced by a myriad of complex global events. In recent months stuff like China’s future growth, Brexit, Fed interest rates, (just to name a few) all spring to mind.
I usually don’t try and guess where the market is going, but focus on saving as much as I can each month in a diversified portfolio of stocks, bonds, and real estate. However, if the market does experience a large drop (no matter which party wins) and I’m offered the opportunity to buy some solid dividend paying companies at depressed prices I’ll certainly consider it!
Tyrone recently posted…Buy a House for Less Than You Can Afford and Get Rich
I think you have an incredibly smart strategy with your diversified portfolio.
Timing the market is a fools game and definitely not something that is easily done.
Thanks for stopping by and sharing!!!
This is a tough topic because I think that there are many things outside of the President’s control. Think of the Federal Reserve. With rates very low most of Obama’s presidency we see that even a rumor of a rate increase sends the stock market down. Imagine when we actually raise rates? This is technically not something the President has any control over. While I’m not a Trump supporter, he made a good point about this in one of the debates and I wouldn’t be surprised if the Fed accelerated rising the interest rate if he won.
DC @ Young Adult Money recently posted…Money & Happiness: How Are They Linked?
I definitely agree with you. The President tends to get too much credit and blame when it comes to the economy. Janet Yellen is definitely the one with all the power.
I am more curious to see if rates rise in December. I have a feeling that they held off for many factors, elections being one but if they actually raise it is independent of the President. I do not support any party, as I am not American, so investing goes on normally. If markets drop I will be there to catch them 😉
Stefan – The Millennial Budget recently posted…The Classic Debate: Earn More Or Spend Less?
I’d love to catch some nicely priced stocks if they drop. But I am somewhat afraid of catching a falling knife as well 🙂
Wow! Some very interesting statistics haha. I had no idea democrats outpaced republicans in market returns!
Personally, I haven’t adjusted my portfolio in response to the election. If I had exposure to pharmaceuticals, I might reduce that because it seems like the industry is getting a lot of unwanted attention from both sides over drug prices.
Other than that, like many people I will finally have a sigh of relief when this election cycle is finally over!
I am like you. I can’t wait for this election cycle to be over. Like way over.
I actually thought people would avoid reading this article because people are so tired of it.
But I thought it was topical so proceeded anyway 🙂
It is interesting that the stock market has done so much better under Democrats than Republicans. Perhaps the most interesting thing, though, is that I haven’t seen any Democratic politicians trying to claim credit for it. (Obviously as you noted there is no proof that the connection is causal, but politicians often seem to seek credit for things that they can’t prove they caused…)
Like you, I plan to keep on keeping on without making any changes in the short term.
Matt @ Optimize Your Life recently posted…Get Rich Faster with an HSA
I was thinking the same thing. If I were a Dem strategist I would be pointing this out every opportunity that I had. Not sure why they’re not but clearly they’re smarter than I am.
Wow, very interesting reads. At this time of writing every poll is showing Clinton is set to win the race. So, you assessment will make it an up market for another 4 years. Either one of the candidates will not run for the 2nd term, I don’t think.
However, there are a lot of secret/closet Trump supporter out there. That was why I was able to win most of the primary States. When we travel across the country, especially through small towns, we only see signs of Trump/Pence. Big town determine the race, but nobody is going to tell you they are voting for Trump in the meanwhile they’d go out and do so.
Therefore the race will probably be tight still.
You’re absolutely right about controlling our own savings and continue to invest in quality companies.
I thought the most interesting thing was that almost ever President had a down year in the 2nd year.
I’m really curious as to why this is the reason.
I also thought it was interesting that the 2nd year of a presidency is normally when the President in power loses the most Senate and House seats.
Anyway…thanks for sharing your observations.
I feel like this is a good place for the classic “it’s the economy, stupid”!
Those are some interesting points you have. Without any data to back it up, I generally always feel like when a democrat is in the office things go a little better for the markets. Probably just remembering Clinton and Obama.
My Money Design recently posted…Good Scary Movies to Watch this Halloween – 2016 Edition
You are absolutely correct. It always boils down to the economy. Hopefully it will continue it’s march upwards but time will definitely tell. Most feel the bull market is getting long in the tooth but we shall see. Thanks for sharing!!!
Particularly as an Australian, I’m always surprised about how much chat there is about this sort of stuff; whether one would be better for the market than the other. Who knows? I’m just going to keep on doing what I’m doing.
“Instead, I will be focusing on things that I can control such as my savings rate, investing in excellent companies, and ignoring the bluster in DC.” This is such a great line and basically sums up my thoughts on the matter.
AustralianDividendInvestor recently posted…Stay the course.
Thanks for stopping by.
I agree there is always a lot of chatter about how important the President election in the US is but at the end of the day I’m not sure how convinced I really am.
The economy seems to be resilient in the face of bad presidents and good presidents.
Anyway thanks for sharing!!!
October has been a notoriously bad month… You may be on to something with that prediction. I’m similar to you, I plan to keep on keeping on, investing in my normal course.
The Green Swan recently posted…6 Attributes of Successful Investors
Hahhaha…I forgot how rough Octobers can be.
Makes a lot of sense when you think about it.
Thanks for sharing!!!
I also don’t think that the result will have any significant long term impact of the stock market. Trump’s wall project might be a benefit for companies like Caterpillar, but that’s it 🙂 U.S. is, and will be a free, capitalist country, no matter who will be elected as the president. We’re not talking about Venezuela here 🙂
Roadrunner recently posted…Rent or Buy? Things to Consider – Part 1
Oh man. I am so thankful I’m not a Venezuela citizen. What they have going on down there is a complete mess and is going to take decades to clean up.
Informative post! I really enjoyed the charts. I too am kind of surprised at the results. I have no intentions on changing investments or strategy based on the President. Just going to keep on with the plan. Steady as she goes!
Mr Defined Sight recently posted…IQ vs EQ in Today’s Workplace
I think that’s the smartest strategy!!! Why change something that’s not broken.
Super interesting! (and also, I wish I was living under a rock this election season.) And I think “keep on keeping on” is the best thing you can do. Fortunately, presidents don’t last as long as good investments
Hahahaha…great line “Fortunately, presidents don’t last as long as good investments.”
I seriously snorted out loud when I read that. Thanks for sharing!!!
Like a good pilgrim on the path to FIRE I am going to steadfastly stay the course, but this was a really fun read. Good work with that research!
Mrs. BITA recently posted…Mega Savings from the Mega Backdoor Roth
Glad you enjoyed the analysis. This was one of the more fun pieces I’ve written.
As you mentioned, the President is only one person. There will be some short-term turbulence & U.S. policy has a great effect on the market, but, we live in a global society and there are far greater influencers than who sits in the Oval Office.
I was surprised to see how the stats were higher for Democratic presidents. I thought it would have been nearly equal.
Josh recently posted…Why Did I Sell My Paid-For Dream Car?
I definitely agree with your statement. Janet Yellen has way more power than the President when it comes to the economy. With that said I was shocked to see how Dems outperformed Republicans.
Fun post 😀
I love looking into this kind of stuff, but I’m with you about not changing my strategy based on conjecture. Having fun with numbers and making pretty spreadsheet? Of course!
Hahhaa…thanks for sharing. I knew going into the article I didn’t think I would change my investing strategy but I still found it a fun exercise 🙂 I’m glad you enjoyed it and thanks for stopping by!!!
Very funny/interesting about when during a presidential term the stock market bottoms… I was familiar with most of the other stats in this post, but not that one – so thank you for pulling that in!
I suspect there are some interesting theories out there about why that pattern might occur. Maybe something to look into further sometime…
Thanks for the good read!
FinanciaLibre recently posted…A (Slightly) Happier 4 Percent Rule
When the stock market bottoms really surprised me but totally makes sense when you think about it. Anyway it’s fun seeing how things line up. Thanks for sharing!!!
Sitting at the other side of FIRE it does concern me what comes next. I worry what might happen to the market. I now live off of my portfolio and the bigger the dip (it will probably be a dip) the more shares of SPY I need sell to pay the bills.
Regardless of who will win there will be a dip as there is uncertainty at both ends. My worry is that depending on who wins that dip might be a little deeper and longer than usual.
Maarten recently posted…This is what it means to be financially independent
Thanks for sharing your perspective Maarten. I can definitely understand being concerned about the future with both candidates. I saw a headline today that said the market dropped when the FBI reopened the probe. I also saw that the Mexican Peso fell. It’s clear the market does not like the prospects if Mr. Trump is elected.
Really interesting read! Like you, I’m not making any changes to my investment portfolio. I’m not one to try to time the market. My two cents is in the short-term, the market will likely continue to do what it has been if Clinton wins. It would basically be an extension of Obama’s presidency which means consistency. If Trump wins, that creates a lot of uncertainty. Not because of his politics but because it’s a new regime. People don’t know what changes he would implement and how the market would react. That creates uncertainty and people will likely pull money out of stocks and move it to safer alternatives. Again, in the short-term.
Go Finance Yourself! recently posted…Be Different: Buck the Traditional Norms to Retire Early
This sounds horrible but I’m ok with a little volatility in the market. Since I regularly make deposit into the market every two weeks. I’m ok picking up some cheaper shares 🙂 While I won’t time the market this 3% range that we’ve been in is feels a little stale.
I am with you on this one. It is interesting to look at numbers. But I have no intentions of changing the course. Since we are in it for the long term we can wait as long as needed. However, the story is a bit different for the folks who are already on the other side of FIRE.
I definitely agree for people that are already reached FIRE the volatility will probably not be great for their portfolio. Hopefully their portfolio is set up to weather the storm. Thanks for stopping by and sharing!!!
I love your conclusion, especially as the media is now being flooded with election related stock market analysis. I’ve come to a similar conclusion- since I’m in for the long haul, I can shrug off any market moves- http://penniesanddollars.com/stock-market-tanks/
Thanks for sharing your article Daniel I’ll definitely check it out. Glad to hear that you came to similar analysis 🙂
Like you I will not be making any adjustments to my portfolio. I plan to continue to make at least one monthly buy as I always have since I became a dividend growth investor. No use trying to time or predict what will happen in the market. As we all saw last week, no pollster, news anchor or financial talking head got anything right in terms of predicting what will happen. Just stay invested in solid sustainable dividend paying companies, stay diversified and consistent with your buys and ride out all future storms.
DivHut recently posted…Recent Stock Purchase November 2016
Great advice and I love hearing that you are trying to make one buy a month. That’s awesome. I normally try to pick one stock a year and the rest go into a passive index fund. Thanks for sharing!!!
Ho ho, this is such a trick article I love it and totally fell for it. I find it silly when people are screaming the end of the world. No, darlings, now go back to your scheduled programming.
Hahaha…I was surprised with the results as well but more importantly how little it actually matters 🙂