As the United States heads towards another presidential election, the anticipation and speculation surrounding its potential impact on the stock markets heats up. America loves politics and this year’s election is-must-see TV in terms of the shock factor and the polarization of each candidate.
We explore to what extent these elections affect financial markets. Historical data reveals that stock market performance can vary depending on factors; including economic conditions, company earnings, monetary policy, and global events. In general, you can find solid stock market positive returns with both political parties. The Obama and Clinton years were good as were the returns under Trump and H.W. Bush.
When you think Republican policies, you think:
- Lower taxes, deregulation, and overall government shrinkage as advantageous to business profits and potentially positive for stocks.
When you think Democratic policies, you think:
- Higher regulation, social expenditure, and government spending may be viewed as favorable for consumer spending and economic growth, thereby benefiting stocks.
US Stock markets are up a majority of the time, so it can be difficult to suggest that the President of the United States has a bearing on markets. History would reveal that the S&P 500 has achieved a median compound annual growth rate of 8.9% under Democratic presidents and 10.2% under Republican presidents since 1957. However, the S&P 500 has achieved an average compound annual growth rate of 9.8% under Democratic presidents and 6% under Republican presidents during that same time, T. Jennewine The Motley Fool (April 2024). The average S&P 500 return is about 10% annually for the last century, J. Royal Nerd Wallet (May 2024).
You can find competing information on this topic based on math and reporting timeframes. You can also make a case that the prior President has some impact on returns under the incoming president their first year.
What can be concluded from all this competing data? Presidential policy may matter more for individuals than it does for markets. A split congress, under the president of either party realizes an average annual return of 13.6% for the S&P 500, M.Lee USA Today (November 2022). This data would suggest that markets favor checks and balances as opposed to a certain presidential political party.