Will A Change in President Cause Poor Market Returns?
Could a Biden Presidency make the stock market go down? In the short-term it could go down but there would also be reasons it could go up. The market may not view his plan for increased taxes favorably, but a stimulus bill or infrastructure spending would likely result in a rise in stock prices. Alternatively, if Trump wins again would the market go up? The market may like President Trump’s lower tax policy but it certainly hates his trade war with China which could intensify with 4 more years of a Trump presidency. As always, placing a short-term bet on the direction of the stock market is always risky. Placing a short-term bet based on which President you think will win during a global pandemic seems like nothing much more than a guess. For this reason, we feel it’s prudent to remain invested for the long-term which then begs the question: how does the market perform under a Democratic President vs. a Republican? We took a look back over the last 40 years to see if any conclusions could be drawn from the past.
Ronald Reagan: 1981-1989 (Republican)
40 Years ago America elected Ronald Reagan to be the President. Many were concerned that this former actor lacked the experience needed to be our commander-in-chief. While some were afraid he would cause a nuclear war with the Soviet Union, or that Reaganomics would trigger a depression, the stock market proved less fearful posting a 14.2% average annual return throughout his 8 year presidential run.
George Herbert Walker Bush: 1989-1993 (Republican)
George H.W. Bush succeeded Reagan having gained experience for the head job while serving as Reagan’s V.P. Some Americans may have worried that he wouldn’t have the same leadership to keep the economy rolling, however, the S&P 500 continued providing excellent returns providing a 15.7% average annual return throughout his 4 year presidency.
Bill Clinton: 1993-2001 (Democrat)
With the Democrats seizing power from the 1992 election, some thought that higher taxes and increased regulation would plunge the stock market. Amazingly, stocks kept moving higher, posting a whopping 17.2% average annual return throughout his 8 year presidency. History would prove that a Democratic President did not cool the stock market as stocks overheated and even bubbled up towards the end of Clinton’s second term.
George Walker Bush: 2001-2009 (Republican)
The economy went into recession shortly after George W. Bush was signed into office. This was triggered by the dot com bubble bursting and rising interest rates. Later in 2001, the September 11th terrorist attack also caused stocks to plunge. While the economy and stock market recovered through most of the rest of his presidency, the stock market crashed towards the end of his 2nd term as a deep recession rocked markets around the world. The financial crisis caused the S&P 500 to decline 37% during Bush’s final year and while he left office with stocks at a very low point, his presidency saw a negative (2.9%) annual return of the S&P 500 while he was in office.
Barack Obama: 2009-2017 (Democrat)
Barack Obama was another President that was elected who some viewed as being inexperienced and while stocks were at a low point when he was signed into office following the great recession, the economy recovered and investors saw a 14.5% annual return on the S&P500 per year through his two-term presidency. Once again stocks performed well despite modest tax increases and regulation.
Donald Trump: 2017- Present (Republican)
Four years ago, clients often asked if the market would plunge if Donald Trump won the presidency. Dow Futures actually did plunge overnight upon his victory, however, the next day stocks rallied back with the Dow closing 256 points higher. Things continued rallying through the end of 2016 and the S&P 500 rose over 21% the following year. Since trump was elected President, the S&P 500 has averaged over a 12% return including the market plunging this March from the global pandemic.
Looking at past returns through different administrations has allowed us to see that since 1980 the stock market has earned an average annual rate of return of just over 10% as measured by the S&P 500. Taking a different time period and looking back to 1929, the annual average return of stocks is once again right around 10%. There have been many Presidents, wars, even pandemics that have come and gone but having an investment in the market over a long time period has proven successful through simply buying and holding. Trying to position a portfolio based on an unpredictable election we feel is futile as it would be nothing more than a guess, however, positioning a portfolio for the long-term would expect to achieve a positive result. As always, time in the market as opposed to timing the market is where wealth accumulation is achieved.
CRA Investment Committee
Matt Reynolds CPA, CFP®
Tom Reynolds, CPA
Robert T. Martin, CFA, CFP®
Gordon Shearer Jr., CFP®
Jeff Hilliard, CFP®, CRPC®