Though history shows both parties are beneficial to equities, one party has overseen a notably higher average annual return for stocks over the last century.
Following the five previous instances, the Dow, S&P 500, and/or Nasdaq Composite lost between 20% and 89% of their value.
The average S&P 500 CAGR of the last seven Republican presidents is 6.2%, notably lower than the 9.6% mean S&P 500 CAGR for Democratic presidents.
This historic outperformance for Democratic Party presidents extends back roughly a century.
However, Democratic presidents have enjoyed a considerably more robust average annual return of 14.78% in the S&P 500 during 51 years in the Oval Office.
Voters nationwide will be going to the polls in a little more than three weeks to decide how our wonderful nation will be run for the next four years.
The fiscal policy proposals that the incoming administration ultimately implements will have an effect on corporate America and the stock market, even though not every action taken by the president-elect and Congress will affect Wall Street.
The past two presidential terms have been very successful for investors. The innovation-driven Nasdaq Composite (^IXIC 0.33 percent), the broad-based SandP 500 (\GSPC 0.61 percent), and the timeless Dow Jones Industrial Average (^DJI 0.97 percent) all gained 56, 67, and 138 percent during Donald Trump’s four years in office!
During President Joe Biden’s term, the Dow Jones, S&P 500, and Nasdaq Composite all experienced gains of 36%, 50%, and 36%, respectively, as of the closing bell on October 27. 10, 2024.
But with President Biden scheduled to depart office in just over three months, the key question now becomes: Donald Trump or Kamala Harris—who would be better for stocks?
History demonstrates that both parties are good for stocks, but over the past century, one party has managed an appreciably higher average annual return for stocks.
It is a historically expensive stock market that Trump or Harris will inherit.
It’s critical to acknowledge the challenge facing the incoming president before delving into party-dependent historical return data. Even though the current bull market is almost two years old, the next president of the United States will take over one of the most expensive stock markets ever.
Value can be measured in many different ways, but the Shiller price-to-earnings (P/E) ratio of the S&P 500, also referred to as the cyclically adjusted price-to-earnings ratio (CAPE ratio), is a particularly useful tool for illustrating how expensive stocks are right now.
The Shiller P/E ratio accounts for average inflation-adjusted earnings over the preceding ten years, unlike the traditional P/E ratio, which is easily skewed by shock events. By taking a ten-year view, shock events are less likely to have an impact and valuation comparisons can be made between like companies.
on October 31, at the closing bell. When backtested to January 1871, the S&P 500’s Shiller P/E was north of 37, which indicates the third-highest reading during an ongoing bull market.
Furthermore, the S&P 500’s Shiller P/E ratio has only exceeded 30 six times in 153 years, all of which occurred during bull markets like the current one. The Dow, S&P 500,and/or Nasdaq Composite experienced value losses ranging from 20 percent to 89 percent after the five prior occurrences. History is not favoring the nominee who prevails in November in this regard.
Beyond just the extremely high prices in the stock market, there are other possible worries.
We have, for instance, witnessed the longest yield-curve inversion in recorded history. Bonds with maturities of 10 or 30 years typically have higher yields than bills with maturities of one year or less. Typically, the Treasury yield curve slopes up and to the right. However, an inversion of the yield curve and higher yields on short-term bills than on long-term Treasury bonds are frequently indicators of impending economic instability.
Moreover, the U. S. In 2023, the M2 money supply saw its first significant annual decrease since the Great Depression. Only five times, including 2023, has the M2 money supply shrunk by at least 2 percent year over year; the other four times were all associated with U.S. S. depressions along with a double-digit jobless rate.
To put it briefly, on inauguration day, neither candidate will be entering a perfect situation.
This is historical evidence about which candidate is better for stocks.
Keeping these difficulties in mind, let’s go back to our original query: Which candidate is better for stocks, Donald Trump or Kamala Harris?
History demonstrates a number of favorable outcomes for investors, with one party clearly outperforming the other, putting aside their policy proposals and how they might change the corporate America landscape.
Thirteen presidents (seven Republicans and six Democrats) have served in the past seventy-one years. Just two of these leaders—George W. While in office, Republicans George W. Bush and Richard Nixon oversaw a negative compound annual growth rate (CAGR) in the S&P 500 benchmark. Compared to Democratic presidents, whose mean S&P 500 CAGR was 9 points6 percent, the average S&P 500 CAGR of the previous seven Republican presidents is only 6 points2 percent.
This is a nearly century-long historical outperformance for Democratic Party presidents.
Using data that Retirement Researcher examined from 1926 to 2023, the average annual return for the S&P 500 under a unified (i.e. e. Congress is divided into the following: one party controls both houses of Congress.
Over a 13-year period, the Unified Republican yielded an average annual return of 14.52 percent.
Unified Democrat: over a 36-year period, an average annual return of 14 points01 percent.
34 years of average annual return, divided with a Republican president (7.33 percent).
15 years of average annual return, divided with a Democratic president (16.663%).
Based on this information, we can observe that since 1926, Republican presidents have presided over an extremely impressive 9.3.22% average annual return in the S&P 500. But in their 51 years in the White House, Democratic presidents have seen a far stronger average annual return in the S&P 500, averaging 14.78 percent.
A victory for Kamala Harris in November would seem perfect for Wall Street, based only on historical data (note the italics!).
Still, the two factors that will ultimately determine investment returns are patience and perspective, not which party occupies the Oval Office.
Historically, the best ally for investors has been time, not any specific political party. Longer than recessions, periods of economic expansion allow investors to bet on the U.S. S. economy to grow for extended periods of time are favorable.
Moreover, Crestmont Research conducted a thorough analysis that was updated earlier this year that looked at the S&P 500’s rolling 20-year total returns, including dividends, going all the way back to the turn of the 20th century. Its components’ total return from other indexes to 1900 was tracked by researchers, despite the fact that the S&P didn’t exist until 1923. 105 rolling 20-year periods (1919–2023) were produced by this research.
Crestmont discovered that positive total returns were generated during each of the 105 rolling 20-year periods. Stated differently, if an investor had, in theory, bought an S&P 500 index fund at any time after 1900 and held that position for 20 years, they would have profited every single time.
Investors who can maintain perspective and patience in the face of election uncertainty—whether it comes to Donald Trump or Kamala Harris—are well-positioned to prosper come November.
