Which Political Party is Better for the Stock Market? Democrats or Republicans?

Posted by Carl Sera on Apr 8, 2016 10:50:32 AM

Presidential Analysis

The November Presidential election will be one of firsts.  Should Hillary Clinton win she would become our first female President.  If Bernie Sanders were to win, he would be our first Socialist President.  If Donald Trump were to win, we would have our first Billionaire President and if Ted Cruz were to win, we would have our first President with Cuban heritage.  This leaves John Kasich as the only candidate that would not be one of firsts. 

With so many possible firsts, it makes it almost impossible to determine which would be the best candidate.  There is a political saying that “people vote with their pocketbook” and what makes this election of firsts so difficult is that as a financial advisor, I can’t determine which of the candidates is better for my client’s pocketbook.  More importantly, I don’t know if it even matters as much as it has in the past.  As we have witnessed the rise of the multi-national corporation to levels of power and influence never seen before and with the ability of these corporations to domicile wherever they see fit, the influence of the US Presidency has greatly diminished.  If we add the sophistication of the elected minority political party to thwart the desires of the President, the President’s influence is less than ever.  Lastly, companies today can grow from nothing into multi-billion dollar enterprises with nothing more than the leasing of office space and the assemblage of human capital.  This means the old economic models are outdated and means the President of the United States is not as powerful an office as it once was with respect to the economy and the capital markets.  Central Bankers play a much more important role.

So which candidate is the best one for my clients?  With so many firsts amongst the candidates, I determined that some historical analysis was in order.  Therefore, I ran a quick analysis of the rate of return and volatility of the stock market from 1900-2015 for both Republican and Democratic Presidents to see if I could find an answer.  Here’s what I found, the compounded annual growth rate of the stock market during the 659 months that a Democratic President has been in power is 12.15%.  It is significantly better than during the 734 months that Republicans have been in power.  Unfortunately, Republican Presidents have only delivered a return of 7.41%.  I then looked at the volatility of the stock market for both Democrats and Republicans because I didn’t want to judge just on rate of return.  Unfortunately, Republican Presidents came up short again.  Republican Presidents registered 7% higher market volatility than their counterparts.  As a final attempt to make the case for Republicans, I examined the worse periods for investing since 1900.  There were 5 periods where the market dropped more than 50% from peak to trough.  Unfortunately, Republican Presidents were in power 4 of these 5 periods.  They were in power during the Great Depression that ended in 1932, the 1973-1974 recession, the Tech wreck from 2000-2002 and the housing crisis from 2007-2008.  Democrats were only in power during the 1937 drop.

I was surprised at the results.  What I learned is that from 1900 to the present, the stock market under Democratic Presidents have produced significantly higher returns, 12.15% vs. 7.41%, with 7% less volatility and lower periods of maximum losses than under Republican Presidents.  Based on history, the choice is clear.

Click on the image below to take you to FinancialAdvisorIQ's video.

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You can see that they paraphrased quite a bit.



CONCLUSION:

I was surprised at the results.  What I learned is that from 1900 to the present, the stock market under Democratic Presidents have produced significantly higher returns, 12.15% vs. 7.41%, with 7% less volatility and lower periods of maximum losses than under Republican Presidents.  Based on history, the choice is clear.

Carl Sera is a Registered Investment Advisor Representative of Sera Capital in Annapolis, Md.

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Topics: Stock market, politics

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