How Presidents Affect Stock Market Performance

18 Feb How Presidents Affect Stock Market Performance

We just celebrated our 218th President’s Day in the US! We thought it would be appropriate to look at history and examine how the office of the president affects the stock market, because like it or not, the political realm plays a significant role on our economy.

Market Cycles And The Presidents (1) 

While past performance isn’t always indicative of future results, the market cycles and presidential terms are closely related. For 60 years — from April 1942 to October 2002 — there were 15 stock market cycles, each lasting around four years (the same length as presidential terms).

Interestingly, the trends don’t follow the specific presidents as much as they do the election cycle of post-election, mid-term, pre-election, and election years. We see that bear markets historically occur during the first and second years of presidential terms. The bull markets kick in during the third and fourth years. The fourth year is also the election year. In fact, a bear market defined as a decline in the S&P 500 Index of 15% or more over a period of 1-3 years never occurred during an election year from 1942-2002.

A Princeton study in 2014 found that the annual gross domestic product (GDP) growth was 1.8% higher under Democrat presidents throughout the last 16 presidential terms. (2) This same study shows that annualized stock market returns for firms in the S&P 500 are 5.4 percentage points higher when a Democrat occupies the White House than when a Republican does. It is interesting to note that from 1984 on, election day is typically a strong day for the markets and post-election day tends to be weak, regardless of which party wins on election night.

And while the president does have incredible influence, there are intricate checks and balances to his power, specifically in the form of Congress. History shows us that since World War II, the best economic performance was when the US had a Republican president with a Republican-controlled Congress, followed closely by a Democratic president facing a Republican Congress or split Congress. (3)

A Broad View

Often, it’s the timing that matters more than the name of the person in office. For example, Republican Gerald Ford the S&P 500 surged 18.6% a year, on average. He came in as President after a large drop and, as history shows us, stocks tend to increase after a downturn. Clinton also saw a healthy economic gains, but remember that he was president during the tech boom.

What This Means For You

As wonderful as it would be to predict the future, all we know is that market cycles are normal and stocks will continue to fluctuate, regardless of who is in office, what their fiscal policies are, or what they promise in their campaigns. Remember that the White House doesn’t control the markets, and there are always other variables involved that play an important role in market success or failure, such as international events, oil prices, and corporate earnings. If you have any questions about how your portfolio is built for the long-term and aligned with your risk tolerance, we’d be happy to hear from you and discuss your concerns. Book an appointment online now!

About Mason & Associates, Inc.

Mason & Associates, Inc. was founded in 1989, specializing in Life Planning for individuals, families and small businesses. Life Planning places a person’s core life values at the heart of the advice process and focuses on the human aspects of financial planning.

As a client, your personal story is key to our planning process. That is why we strive to build a close relationship that will encompass every aspect of your life. Together with our team of professionals, we guide you through the process of identifying what is important to you, your goals, your dreams. We then put into place a financial road map to set you on your way towards achieving your objectives.

Our responsibility does not end there. As you encounter bumps in the road, changes in goals or any other roadblocks, we are there to offer advice and guidance. We are there to celebrate your successes and cope with your challenges. We work alongside your other professionals such as your attorney and your CPA to be sure all of your legal and financial needs are aligned.

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(1) https://gbr.pepperdine.edu/2010/08/presidential-elections-and-stock-market-cycles/

(2) https://www.princeton.edu/~mwatson/papers/Presidents_Blinder_Watson_July2014.pdf

(3) http://money.cnn.com/2015/10/28/investing/stock-market-democrats-republicans/index.html

Brent Mason
sherri@bigideacreations.com