Democrats Versus Republicans: Who Gets Better Stock Market Returns?

By Evor C. Vattuone, CFP®

The argument about which party is better for stock returns has been going on for decades. Leading up to the 2016 presidential election, the argument was made that the stock market does better with a Democratic president than a Republican president. After the election and the subsequent stock market rise, the argument has been made that Donald Trump as president will be great for U.S. stocks. In fact, the Trump administration has taken much of the credit for the great returns thus far in 2017.

Statistics to support such claims have also been widely grandstanded by politicians for decades. As the Vanguard study below shows, these claims are typical political lies or misrepresentations of statistical data:

Statistics can be made to say almost whatever a person wants, which is great news for a politician. But let’s take a moment to think like an investment manager (wearing his or her statistics hat). Here are some of the ways you can manipulate data for political purposes:

  • You can define the “stock market” in many different ways. The particular pool of data you look at will change the results, sometimes drastically. Some politicians may choose to use the Dow Jones average; others may choose to use the S&P 500. Each of these is a large-cap U.S. stock index, which omits mid-cap and small-cap stocks, thus influencing the results.
  • You can define a president’s term in many different ways: from the time they were elected, Inauguration Day, several months after inauguration, etc. Since the markets anticipate movements, do we credit the drop at the end of 2008 to Barack Obama or George W. Bush? Is the stock market appreciation after Trump’s election better explained by hope about his presidency or lingering gains from the Obama era?
  • Finally, you can cherry-pick your starting date. For example, start with Republican President Herbert Hoover’s inauguration on March 4, 1929. Measured by the Dow Jones average, Republicans will begin the term with four years of annualized losses of 35.6%, culminating in a massive 82.8% decline by the end of the Great Depression. Ouch. A campaign manager may want to keep that data point away from the voters! Alternatively, the same campaign manager may want to start the data collection before the Hoover administration, with Calvin Coolidge on August 2, 1923, and Republicans will receive six years of 25.5% annualized gains! If I were a campaign manager, I may be more than tempted to include that.

There are many other reasons why a certain administration may have stepped into an era of better or worse returns in the stock markets. For instance, Ronald Reagan had to break the back of inflation and suffer a recession before the economy could start growing again.

No matter which party controls what branch of the government, the livelihood of millions and millions of Americans working hard for publicly traded companies depends on those workers and business leaders finding a way to make a profit. Politics matters less to our financial success than the ordinary decisions we face every day of living within our means and saving and investing in the markets.