Politics and Stocks

In this murky soup of American politics, we try to place blame on one politician or another for his or her influence over policies that may or may not directly affect the enormous capitalist economy that we have. People often ask, “Is it better for the stock market when there is a Democratic President/Congress or a Republican one?

According to Crandall, Pierce & Co., the Dow Jones Industrial Average had the following results. This is for the 1945-2009 time period.

Circumstance Average DJIA Annual Return
   
Who is the President?  
Democratic President    9.43%
Republican President    6.81%
   
What happens when parties line-up for President and Congress?  
Democratic President, Senate & House 7.43%
Republican President, Senate & House 14.06%
   
What is the best historical scenario for the stock market?   
Democratic President and Republican Senate & House 14.67%
   
*Since 1945 there has not been a line up of the current situation: Democratic President, Democratic Senate and Republican House.  

Notably, all returns are positive, pointing to the fact that on average annual stock returns are positive regardless of politics. The dispersion of returns is large enough however that knowing the average return does not give you much insight into what stock returns will be in any given year. Since you can’t really use this information to your benefit, it is best to keep a long-term perspective with a well-diversified portfolio.

It is my opinion that so many factors affect the stock market that this is no true indicator of stock market performance. The market is affected by past policy and present decisions, as well as investor expectations. It is affected by a global economy and enormous world-wide demographics. Nevertheless, we do get asked the question fairly often, so here are the statistics – but you may want to take them with a grain of salt.

Harli L. Palme, CFP®

Financial Advisor

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