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Biden Versus Trump

Some speculate that the future of the republic hinges on the outcome of the next election. But for smart investors it doesn't really matter who wins.

Conventional wisdom says that those liberal Dems are generally bad for the economy and the stock market because of their big government tendencies, while fiscally conservative Republicans are good. This widely accepted belief is actually fake news if you look at data going back to the end of World War II.

“Stock markets do perform better under Democrats than under Republicans. That’s a well-known fact, but it does not imply cause and effect,” says Jeremy Siegel, the Russell E. Palmer Professor of Finance at the Wharton School of the University of Pennsylvania. From 1952 through June 2020, annualized real stock market returns under Democrats have been 10.6% compared with 4.8% for Republicans. 

With the 2020 election less than two months away, some investors are fretting about the pros and cons of a Trump vs. Biden presidency. A Democratic sweep would almost certainly mean a rollback of Trump’s massive corporate tax cut (a negative for stocks), but additional economic stimulus (which the market apparently loves despite deficit implications) and stability on the China trade front would be a big positive. 

 

PRESIDENTIAL PERFORMANCE

Which presidents have delivered the best stock returns? So far Democrats are dominating.

According to Siegel, author of the 1994 investment classic Stocks For The Long Run, Wall Street’s obsession with politics is mostly misplaced: “Bull markets and bear markets come and go, and it’s more to do with business cycles than presidents.” In some ways the current environment has characteristics of the existential threat faced by George W. Bush post-2001 (replace terrorism with pandemic), the civil unrest that plagued the Johnson and Nixon administrations and Ronald Reagan’s trade war with Japan in the 1980s. 

 

President                            Political Party        Years In Office             S&P Return (%)

 

William J. Clinton                        D                          1993-2001                        210

Barack H. Obama                       D                          2009-2017                        182

Dwight D. Eisenhower               R                          1953-1961                        129

Ronald W. Reagan                      R                           1981-1989                        117

Harry S. Truman                         D                           1945-1953                         87

George H. W. Bush                     R                           1989-1993                         51

Lyndon B. Johnson                     D                           1963-1969                         46

Donald J. Trump                         R                            2017-                                43

Jimmy E. Carter                          D                            1977-1981                        28                 

Gerald R. Ford                            R                            1974-1977                        26

John F. Kennedy                         D                            1961-1963                        16             

Richard M. Nixon                       R                            1969-1974                       -20

George W. Bush                         R                             2001-2009                      -40

 

Source: YCharts. Table: Forbes

 

In an effort to more closely examine the relationship between the actions of a president and the direction of stocks, Forbes has analyzed their stock market performances, including dividends, dating back to Harry Truman, using data from the National Bureau of Economic Research (NBER).

The winner among presidents for the best cumulative stock market return is William J. Clinton, with nearly 210%. The worst: George W. Bush, with -40%. Uncertainty has been the biggest disrupter of markets by far. In September 1955, for example, stocks dove 6.5% in a single day when Eisenhower suffered a sudden heart attack after a golf outing. When Kennedy was assassinated in November 1963 the immediate fall off was 3%. In both instances stocks promptly recovered. Market gyrations aside, investors can take comfort in the fact that in the long run, buy and hold worked best. A $1,000 investment in an index of large U.S. stocks in January 1945, would have compounded at an annual total return of 11% and would have been worth $2.3 million by the end of 2019.

 

 

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