Will the Outcome of the US Election Impact the Stock Market?Jake Steele, Wealth Advisor
What will happen to the stock market if Joe Biden wins?
What happens if Donald Trump wins?
I am going to look at these questions from a historical market perspective. I am not going to look at who might be better for the economy or who will be better for the country. This is not a political blog. I am going to look at these questions from the perspective how the market has done in relation to different presidents and the party they represented.
I am not interested in what happens to the market the days before or the days after an election, or even the six months following an election. I am interested how the markets have performed over the life of each sitting president. The sample size I used was post World War II, Harry Truman to Donald Trump. We will look at the returns of the S&P 5001 as this is the best barometer of the overall health of the stock market.
One thing I observed going through this process—there is a fair amount of luck in how the stock market performs with any president. Where a president takes power in relation to the business cycle can have an enormous effect on how well the stock market will perform.
For example, George Bush Jr. (Republican) took over right as the technology bubble was bursting. 9/11 happened in his second year and the financial crisis finished his presidency. Surprisingly, the best returns in Bush Jr’s presidency were during the beginning years of Gulf War II. To say the S&P 500 did not do well during the Bush presidency is an understatement. In fact, Bush holds the record as the worst president in terms of Market performance since 1945.
Under the Bush presidency, the House and Senate were unified under Republican control for four of those years. There was every opportunity to prove that the Republican Party is good for the stock market. Does this mean that Republicans are bad for the market? No, there were many circumstances outside of any party control.
Bill Clinton (Democrat) holds the record for best stock market returns by a president since 1945. During his presidency the republicans held both the house and senate for six years straight. Despite this, there was what some consider one of the greatest stock market bull runs in history. Does this imply that Democrats are better for the stock market? I would not make that argument. Clinton was very lucky when he got elected, just as Bush was very unlucky.
Dwight D. Eisenhower (Republican) had the second-best record of returns over the life of his presidency. Trump (Republican) was just behind Eisenhower until this year, but Covid-19 has pushed him down the list for the moment. Is Covid-19 Trump’s fault? – Certainly not. In this case he has certainly been unlucky.
I will end this article speaking about Barack Obama’s (Democrat) presidency. The economy was sluggish for much of his presidency; the result of a once-in-a-lifetime financial crisis. The economy does not always mirror the stock market. In Obama’s case the stock market performed quite well, despite an economy that some would argue never really took off. Further, some would argue that Obama hurt the economy with his socialist leanings, which hurt performance even more.
This is not an article that has any interest in taking a point of view on that, but only to say that despite (or in spite) his policies the market performed very well. As of today, Obama’s S&P 500 performance is ahead of Trump and behind Clinton, Eisenhower, Bush Sr, and Truman. Ronald Reagan (Republican) is virtually tied with Obama when it comes to returns.
What does this mean for the next election in November 2020? Very little when it comes to the stock market. Presidents can try to take credit for the stock market, but they actually have very little sway in the markets. A president from either party has had excellent stock market returns and abysmal ones. Party affiliation has very little to do with market returns and more to do with where the business cycle is, and how the federal reserve responds with interest rate policy.
Whether Biden or Trump wins in November, they will need a bit of luck to see their stock market perform well.