Presidents and Markets: Investing Observations Based on Who Is in Charge

Usually during election years, I hear people talk about how the markets will move one way or another when gets elected. It’s a debate that tends to anchor itself in each person’s own political views and biases and doesn’t have any practical takeaways. I usually tell people who ask me “Will the market do better with President X or President Y in charge?” that it really doesn’t matter as much as you think it does. Markets are so globally connected now, and unless there are some drastic tax law changes or market structure reforms, markets will be influenced by the numerous macro and micro variables that have affected them regardless of President (or Congress). I’d argue that our Federal Reserve has more influence on global stock markets than any elected official. For instance, let’s look at the last 10 bear markets and their causes (courtesy of JP Morgan) – try to find anything strongly relating to legislative actions:

Disclaimer: All this will change should President Trump take office. My guess is that bear markets will be banned via executive order.

The following chart from Goldman Sachs shows returns of the S&P 500 Index by which political party is holding the Presidency and majority in Congress. The chart on the right determines the strength of relationship between election results and market performance. As you can see, the relationship is weak.

So, what’s the lesson? Invest based on your own personal and financial goals and not on who’s in charge.
Bonus material: The following graphic from CNN Money shows the average annual gain for the S&P 500 Index during each presidency, as calculated by S&P Capital IQ: