All individuals hold differing opinions on the nature of whether or not they believe Republicans or Democrats are better for the market. As humans, it’s in our nature to look for ways by which we can ‘predict the unpredictable,’ in this case: predict the ways in which the market will perform in accordance with the policies and practices of particular political parties. The fact of the matter is that thinking one party outperforms the other in terms of market performance is objectively untrue.
Figure 1. The S&P 500, 1929-2019: Historical Political Party of Presiding Presidents and Respective Market Performance
Examining Figure 1 above, data was collected on the market performance of the S&P 500 for the past 15 presidents, their time in office ranging from 1929-2019 (Slickcharts, 2020). Based on the number of years in office each president was situated, we were able to calculate the average annual rate of return for the market, during the length of their presidency. The average performance for each party actually reveals that Democrats have a marginally higher average market performance than Republicans, but so small a difference that it cannot be considered statistically significant, as the difference between performance is buried deep within the minutiae of the individual challenges the country faced on a year-to-year, president-to-president basis. Some of these factors will be discussed later in this post.
This graph makes evident a number of important concepts, the first being that the market has seen a general trend of increasing performance over the past century, with micro-fluctuations making up the larger macro-picture of the entire growth of the S&P. Regardless of which party is in the White House, we can see continued increases (BlackRock, 2020). In fact, $1,000 invested in the S&P 500 in 1926, would have grown to a sum of about $8.96 million by June of this year, with numerous inaugurations along the way (BlackRock, 2020).
Based upon the red line (Figure.1) indicating the year-to-year percent change of the S&P, we can also see some relatively consistent girations of the market (Macrotrends, 2020), which goes to show just how little influence the individual president really does have on the performance of the market. The cyclical nature of events that challenge the economic and societal standards of America at that respective time in history lead to the push and pull of the market, rather than the individuals in office.
An important distinction to make here is the difference between the market and the economy. While the two -in many ways- operate adjacent to one another, they represent two very different entities (Palacios and Ryssdal, 2019). The economy is better measured by things such as unemployment rates, workers wages, housing data, or levels of relative productivity such as GDP (Schieder, 2020). The market on the other hand is a reflection of the economy. Investors take the information the economy gives them and make predictions about where they think the economy is headed in the future, as well as where money will be flowing through the ever changing landscape of ways by which our system of goods and services reaches consumers.
So what does this all mean? We all have political convictions tied to beliefs that are shaped by our individual life experiences. Despite these convictions, we encourage you to look at the objective data presented surrounding market returns, and understand that the market is not a force than can ever be accurately predicted (much less attributed to the decisions or policy implementations of one party over another).
Every single president has seen their fair share of conflict and attempted resolution. Events such as international conflicts, recessions, civil unrest, health crises, natural disasters, and social movements come and go without warning, and present unique sets of challenges for each incumbent POTUS:
As you can see, there is no presidential term that has not faced it’s fair share of challenges ultimately out of its administration’s control. As we currently see with Donald Trump, the booming market his administration realized was undermined by the Covid-19 global health crisis that wiped out nearly every bit of gain that he made over the course of the entire presidency, within a matter of days. The market has entirely rebounded, however there are many factors that are included in the success of a market that are much deeper than the policy decisions that are made while an individual is in office.
As discussed in previous blog posts, (see Carl Szasz’s Fireside Chat discussing the different types of bear markets) bear markets can be onset by a variety of different sources. Bear markets vary in severity depending on the nature of the onset of the market decline. For example the bear market we saw in 2008 is predicted to be much more severe than our current market decline due to the fact that in 2008, the economy and market suffered from foundational errors that made a successful rebound much more difficult that something such as the current health crisis. Coronavirus affected our economy in the way by which many parts of the economy were forced to be temporarily shut down due to mandated social isolation policies aimed at lowering the rate of virus transmission.
Our goal at Verde is not to strip you of your political stance, but rather to give you confidence in the nearing election, that the market is not influenced by one party or the other. The market is reactive to the events that shape American history and the challenges that every day Americans will continue to face in light of the changing foundations of our socially distant, forward thinking world. Mathematics is free of political orientation, and when it comes to your investments, we take a mathematical and statistical approach that takes out the bias that can lead to irrational decision making. This post is for educational purposes only and is not intended to endorse any nationally represented or otherwise recognized political party over another.
Verde Capital Management, Inc. is a federally registered investment adviser. The information, statements and opinions expressed in this material are provided for general information only, are based on data we believe to be accurate at the time of writing, and are subject to change without notice. This material does not take into account your particular investment objectives, financial situation or needs, is not intended as a recommendation to purchase or sell any security, and is not intended as individual or specific advice. Investing involves risk and possible loss of principal capital. Diversification does not ensure a profit or protect against a loss. Past performance is not indicative of future returns. Advisory services are only offered to clients or prospective clients where Verde Capital Management, Inc. and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Verde Capital Management, Inc. unless a client service agreement is in place.
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