I am asked this nearly every single presidential cycle. Often, it’s believed that Republicans oversee better stock market returns than Democrats; but, is that true?
A recent article in the September 2020 issue of the Journal of Financial Service Professionals tackled that perception.
Based on an analysis of data from the beginning of the last century – 1900, through 1968, there appears to be no long-term patterns in market movements, which would justify Wall Street’s Republican bias. Yet, it’s worth noting that equity markets went up the day, week, and following month after the election of a Republican, while markets tended to fall the day, week, and month following the election of a Democrat.
If you skew the years from 1929 through 1980, the difference was startling. The market increased 14.1% for the Democrats compared to 4.9% for the Republicans. After 1980, it’s been a mixed of returns between the two parties.
Republicans over Democrats may simply be a bit of market folklore. A presidential election should probably be seen as a single piece of information an individual can use when establishing their risk and return expectations. Over very long holding periods, who is in the White House at any given moment may just not matter than much.
(Compliance notes for FFSI: The Journal of Financial Service Professionals, September 2020, Do Presidential Elections Predict Market Returns? Pages 11 – 14)