Republican Presidents and the Stock Market

Republican Presidents and the Stock Market

There is an underlying “feeling” among investors that republican administrations are good for investment. It makes sense. After-all, republicans lean toward lower taxes (especially for business and high income earners), are thought of as fiscally conservative, proponents of free-markets, and advocates of de-regulation. However, when you look under the hood of this belief, you find something very different.

The table below (from Bloomberg) shows the stock market returns for each administration going back to 1929. The average return over 4-year terms is 57% for Democrats, and 16.6% for Republicans, while annualized returns were 10.8% and 1.7% respectively.

If we look at just the last 29 years of the S&P 500 (chart below), we see that the Republican presidents managed a gain of 166%, while the Democrats presided over a 1894% gain in the S&P 500.

We don’t pretend to understand why this is the case, but that is the quantitative reality. A reality that implies a lower probability of stock market gains during Republican terms, whether one looks at short-term or long-term data.

What’s the situation today? The stock market, so far, is betting that the Republican President Elect will buck the historical trends and repeat the successes of Eisenhower, Reagan, and Bush senior, while side-stepping the losses of Hoover and Bush junior. This is happening months before the Donald even sits down in the Oval Office. This fact alone makes us think that the bet is premature and likely wrong.

It could be argued that the Donald is not a Republican and, as such, history does not apply. There is some truth to this, but the fact remains that the legislature is Republican and it makes the laws that will, in the end, determine how the economy succeeds.

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Source: Nicholas Gomez