03 Nov Presidents & the Stock Market
Photo credit: Vox Efx on VisualHunt / CC BY
It’s a big day today. The polls are indicating a comfortable win for Democratic nominee, Joe Biden, but who can forget 2016? The thing is, when one of the candidates is, shall we say, a little controversial, people will lie in polls. Sometimes people are ashamed to admit who they will be voting for.
A recent poll showed that 70% of Republicans think people lie in polls, compared to 60% of Democrats (I wonder how many of the people in that poll lied when answering 🤔). So, who knows who will win today? Your guess is as good as mine.
People get nervous about the stock market at election time. And Trump never stops going on about how well the US stock market is doing because of him. And it has done well under Trump. But is that because of him or in spite of him?
At the time of writing, the S&P 500 is up just under 60% since the 2016 election. Under Obama, the market was up 79% at the end of his first term. Again, was that because of, or in spite of him?
Of course, it’s natural for investors to look for a connection between who wins the White House and how the stock market will perform. Our inclination is to assume that the US stock market does better under Republican presidents because Republicans are seen as being more pro-business. But as nearly a century of returns shows, stocks have trended upward under both Republican and Democrat presidents (with returns under Democrats actually being better than under Republicans).
But really, although Presidents can have very short term impacts on the market (Trump has often affected the share price of various companies due to either praising or damning them on Twitter, and the market fell 6.5% in one day when Eisenhower suffered a heart attack) it is Congress, not the President, who sets taxes, writes and passes spending bills, and passes laws.
The thing is, when you invest in the stock market you are investing in companies, not a political party, and companies concentrate their efforts on serving their customers and growing their businesses, regardless of who is sitting in the Oval Office.
US presidents may have an impact on market returns, but so do hundreds, if not thousands, of other factors—the actions of foreign leaders, a global pandemic, interest rate changes, rising and falling oil prices, and technological advances, to name just a few.
Stocks have rewarded disciplined investors for decades, through Democratic and Republican presidencies. It’s an important lesson on the benefits of a long-term investment approach.