The S&P 500, which I mention regularly here, is typically used a stand-in for the entire US stock market. It is of course only one of three such major financial indexes, but it’s broad and diverse, tracking 500 large U.S. businesses that span all 11 market sectors (utilities, energy, health care, etc).
Since its inception in 1957, the S&P 500 has returned about 12,000% not including dividend reinvestment and depending on how it’s measured. That’s a compound annual growth rate (CAGR) of 7.4%. Add in all dividends issued in that time and the totals would be substantially greater.
So which US presidential administrations saw greater returns in the last 70 years? Again, it depends on how you measure. Average CAGR? Median CAGR?
The S&P 500 managed an average CAGR of 6% under Republican presidents but 9.8% under Democratic presidents. However, the index has achieved a median CAGR of 10.2% under Republican presidents and only 8.9% under Democratic presidents. So when you’re listening to the political blowhards, remember that both teams can correctly claim superior returns.
Statistics are fun (and frustrating) precisely because it’s often possible to facilitate the desired outcome by approaching data from different angles. What if instead of looking at the entirety of each administration’s time in the White House, we look at every individual year? From that perspective, the S&P 500 achieved an average annual return of 7% under Republican presidents and 11.4% under Democratic presidents.
A touch clearer right? But wait— note two points. First, by looking at each year separately, we are unable to account for compounding, which is a powerful tailwind to any long-term portfolio and without which we are left with generally inaccurate data. Second, by far the two most impactful market ‘crashes’ in the last 70 years occurred under Republican presidents: the 1973 oil crisis and the 2008 Great Recession (2020’s pandemic crash was smaller and much shorter-lived). These outlier events completely skew the numbers— and arguably neither was directly the fault of the sitting president.
What about Congressional control? Do Democrats or Republicans have a better track record of market gains?
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. Stocks' worst performance was anytime one party held all three— the White House and both branches of Congress— no matter which party.
So if a Democratic president and split Congress are the combination generally better for markets, is that the outcome we should hope for? Vote for? Sure, if the only variable we’re interested in is market movement. But most of us cast our votes on a variety of policy preferences. Which would seem to leave us in a quandary facing a major election. Which party is better for broad market gains? Answer: It doesn’t matter!
The question itself is absurd, and unhelpful. Markets move based primarily on two complex factors: macroeconomic trends and investor sentiment. The economic side is statistical and measurable: Are interest rates higher than recent trends? Is borrowing dropping or are debt levels stable? Are we in a military conflict, or a trade war, or a pandemic or housing crisis? But the sentiment side is notoriously difficult to lock down: Are consumers feeling confident or assumptive? Cash-heavy or cash-poor? Greedy or fearful? Markets generally don’t move much (or don’t continue moving) based on the party in power.
Which means the best advice I can give is the same as ever. Say it with me:
Don’t fret over Trump’s promised tariffs against China or his likely tax cuts for the rich. Don’t worry about Harris’s desire to double down on the child tax credit or to increase housing construction. It won’t mean much to your returns over time. Just keep socking your money away in a simple index ETF like the S&P 500 (SPY) and focus on taking care of your health, your family, your community.
Vote, of course— it’s your duty as a citizen. But when it comes to your porfolio, don’t worry about the elections.