This past Wednesday, we witnessed the Inauguration of Joe Biden as the 46th President of the United States of America. After a tumultuous election last fall, Biden was certified the victor by the Electoral College on December 14th, 2020. Whether you bleed Red or Blue, Democrat or Republican, the question becomes, do Presidents really matter to the markets?
The short answer is no, but as with most things markets related, it’s a bit more complex than that. Today, I’ve invited my venerable and esteemed colleague, Austin Wilson, to be a guest author of this post. Austin is a Research Analyst at our firm and has been with us since 2018. He is also the co-host of the uber popular podcast The Invested Dads!
I want to start by saying thank you to Tony for allowing me to be a part of this blog and disclaim up front that the thoughts I write here are not my political opinion, but rather a collection of research based on historical results…for both politics and the markets.
So – Tony is right. The short answer is that, NO, whoever the president is, whether Democrat or Republican, or even which political parties control the respective houses of congress, has historically NOT mattered as it relates to market performance.
I am a numbers guy so let’s prove this with actual returns (the graphic below from Bespoke Investment Group).
Here we see that the Dow Jones Industrial Average has averaged a return of about 6.42% annually since 1901 with positive returns 70% of the time. That’s not too shabby! I will also note that returns since World War II have been stronger.
Where things get interesting is that it is often thought that:
- Republicans have more business-friendly policies so markets should perform better under Republican Presidencies over time and
- Gridlock is good for the markets because it forces congress to compromise, limiting any real change to laws…because the market hates uncertainty.
The funny thing is – both of those assumptions have actually proven to be inaccurate.
Historically speaking, Democratic Presidents have edged out Republican Presidents in terms of market performance and all possible combinations of Gridlock have yielded lower returns than that of either a Republican or Democratic sweep.
Regardless of our assumptions of the market and politics over time, one thing it has done historically is rise. Given enough time, it has risen under most scenarios listed in the graphic. It rises because our economy grows and the companies that are helping that economy to grow are growing profits too.
Yeah yeah, Austin…anyone can say that, but this time is different!
Well, to that I would say that every single election in the history of our great nation has been under vastly different circumstances. We have had elections during war. We have had another election during a public health crisis (the 1918 congressional midterms were held right in the middle of the Spanish Flu pandemic). We have also had elections during both economic expansions and economic recessions. So, I guess my point is that maybe this time isn’t actually so different…only because different is actually normal. Does that make sense?
So where does that leave us for 2021? It leaves us in the relative beginning of a new bull market and likely early in an economic expansion (yet to be confirmed by the National Bureau of Economic Research). It leaves us in a time of change for our country, but that is nothing new. We live in a world of inevitable change and, while the unknowns can be stressful, and last year was evident of that, we need to keep in mind that we wouldn’t be a nation of freedom and prosperity were it not for change over time. Had change not occurred, we may still be paying taxes to an island across an ocean and allowing them to make decisions for us. Had change not occurred, not all of us would be able to vote. We wouldn’t have sent a man to the moon. We wouldn’t be America without the constant change that got us here.
I believe that the American people will drive this rebound, just like we have in the past. We will continue innovate, invent, and grow our economy over time. The publicly traded companies that deliver the means to do this will grow as well, leading to a long-term rising stock market in which we can grow our wealth to have the resources to last a lifetime regardless of who occupies the White House, Senate, or House of Representatives at any given point in time.
Wow! Couldn’t have said it better myself Austin! Thanks for being my guest blogger this week! For more of Austin’s thoughts and content, please subscribe to The Invested Dads podcast!
To my regular readers, I hope you found this post helpful! Feel free to share with a friend to help spread the message and provide me the necessary affirmation to keep writing!