Stock Performance By Political Party of President and Congress
Which political party does the stock market perform better under? That is an oft debated question. Especially during a presidential election cycle.
According to Jeremy Siegel, author and Professor of Finance at the Wharton School of University of Pennsylvania: “Stock Markets do perform better under Democrats than under Republicans. That is a well-known fact, but it does not imply cause and effect.”
Siegel went on to downplay the obsession with the effect of politics on Wall Street: “Bull markets and bear markets come and go, and it’s more to do with business cycles than presidents.”
But how do markets perform under various party administrations? In the following chart we find that stocks averaged 11.0% per year when a Democrat was in the White House compared to 7.8% for a Republican president. However, when you look at stock performance based on control of Congress, the answer is something quite different. When Republicans held the majority in the Senate or the House, stocks averaged 11.9% and 11.0% respectively. This far exceeded the 6.3% and 7.7% returns when Democrats had the majority. When Congressional control was split (which occurred 26% of the time), stocks performed the best, averaging 13.3% per year. When one party held the White House and the other controlled all of Congress, stocks also did well, averaging 10.1% per year.
Stock Performance by Political Party Control of President, Senate, House MJP
When did stocks perform poorly? When either party held both sides of Congress and the presidency, market performance lagged. For example, when Democrats had total control in Washington, stocks averaged only 5.6% per year compared to 5.7% when Republicans reigned supreme.
To sum up, stocks did best when 1) political control was split; 2) when Republicans held the Senate or the House; or 3) when a Democrat was president. In other words, stocks underperformed when either party had total control.
Stock Performance by President and Congress: Calendar Year
The next chart shows the percentage change in the Dow Jones Industrial Average in each year from 1977 through 2019. Under each president’s name are two color-coded, horizontal bars depicting the political party in control of the Senate (top bar) and the House (bottom bar).
Annual Stock Performance by President - 1977 Thru 2019 MJP
During the Carter years and during George H. W. Bush’s time in office, Democrats controlled both sides of Congress. They also controlled the House until Clinton’s third year in office when Republicans took control of both sides of Congress.
So, what does the outcome of the upcoming election mean to the stock market? If history is any indication, then the answer is not nearly as much as business cycles and the overall economic conditions.
As we work with our clients at AP Denver, we help create a financial plan and a diversified portfolio to withstand varying market conditions and help our clients meet their financial goals. We also continue to monitor and assess the stock markets and overall economic environment.
