People mostly vote with their wallets for the candidate perceived to be better for their finances. A quantitative look to see how the market performed under each candidate's party yielded surprising results.
This year’s presidential election is being billed as the most important election in our country’s history.
Of course, that’s what was said about the last election.
And the same thing about Bush versus Gore. And Reagan versus Carter. And probably Harrison versus Van Buren; Taft versus Bryan; and many others in U.S. history.
People mostly vote with their wallets. Whichever candidate is perceived to be better for their finances usually gets their vote. Sure, social issues, foreign policy and character matter, but it ultimately comes down to money — and the belief that a candidate will lead to more of it for the voter.
By this point, each candidate has pulled made up numbers out of thin air and straight out lied about his and his opponent’s track records. The second presidential debate would have embarrassed Pinocchio.
Both candidates are trying to convince the American public that they can return the nation to prosperity. Frankly, I don’t have much confidence in either guy, as they’re both full of “malarkey!”
So I decided to take a quantitative look and see how the market performed under each candidate’s party.
The results may surprise you.
I looked at the performance of the Dow Jones Industrial Average starting at the beginning of every presidential administration, going back to 1901. The S&P 500 data began in 1929 (including a proxy for the index before it actually started in 1957).
I also broke it down further to see what effect having a Congress that was the same or opposition party would have on the results.
Lastly, I wanted to get a sense of the long-term impact of the administration’s policies. A president’s actions don’t only impact the economy from inauguration day to inauguration day. They can have a long-lasting effect.
For example, some say President Bill Clinton is the recipient of the good fortune that was a result of President Ronald Reagan’s policies. The argument can also be made that President Barack Obama is suffering through the malaise caused by President George W. Bush’s mistakes.
The first table shows the performance of the Dow and S&P 500 with a Republican or Democrat president. There were 15 Republican terms and 13 Democrat.
According to the numbers, when it comes to the Dow, Democrats appear to be better for the market in the short term, while Republicans are in the intermediate term. During the long term the results were identical.
However, in the broader S&P the market performed way better under a Democrat president across all time periods studied.
Now, let’s take a look at how Congress impacted the results.
Couple of notes
The sample sizes of a split Congress (meaning the House and the Senate were controlled by different parties), were very small. Only Ronald Reagan’s two terms in office for the Republicans and Woodrow Wilson’s second term for the Democrats.
For the Dow, Reagan’s two terms blew all other combinations away across every time period except five-year performance. When you add the S&P 500, Reagan’s five- and 10-year performances were best, but shorter term, investors did better with a Democrat in the Oval Office and Republicans in control of Congress.
If you eliminate Reagan’s term so that only larger sample sizes are used, a Democrat president with Republican Congress had the best one-, three- and five-year performance in the Dow. The 10-year champion was a Republican president and Democrat-controlled Congress.
For the broader S&P 500, the market climbed much higher when a Democrat was in the White House. Short- and intermediate-term performance was enhanced when the Democrat president had an opposition Congress.
But perhaps the most surprising results were that long-term performance was much stronger when the Democrats were firmly in control of the government, returning 253.69% over 10 years or an average annual return of 13.57%.
The perception is that Republicans are more pro-business. I think their policies and plans back that up. But at least as far as the market is concerned, over 100 years of results suggest you’ll make more money on your stock investments with a Democrat in the Oval Office. (How much of it you’ll get to keep is another story due to differing tax proposals.)
Lots of factors go into who Americans select as their president — foreign policy, tax policy, social issues, etc. The stock market is usually not a big consideration. If it was, George W. Bush wouldn’t have had a prayer against Al Gore, as the market more than doubled under Clinton’s last term. And Mitt Romney would be the Republican equivalent of Walter Mondale after Obama’s 69.6% bull market.
But it’s useful to look back and see how the market has performed under various circumstances throughout history. After all, as Mark Twain said, “History does not repeat itself, but it does rhyme.”
Whoever wins the election, I hope it’s the right person. I’m just looking forward to Nov. 7 when it’s all over and we can go back to watching those classy Cialis commercials during football instead of slanderous political attack ads.