Which Candidate is Better for Your Portfolio?
by Marc Lichtenfeld, Investment U Senior Analyst
Wednesday, October 17, 2012: Issue #1884
This year’s presidential election is being billed as the most important election in our country’s history.
Of course, that’s what was said about the last election.
And the same thing about Bush versus Gore. And Reagan versus Carter. And probably Harrison versus Van Buren, Taft versus Bryan and many others in U.S. history.
People mostly vote with their wallets. Whichever candidate is perceived to be better for their finances usually gets their vote. Sure, social issues, foreign policy and character matter, but it ultimately comes down to money – and the belief that a candidate will lead to more of it for the voter.
By this point, each candidate has made numbers up out of thin air and straight out lied about his track record and his opponent’s. Last night’s debate would have embarrassed Pinocchio.
Both candidates are trying to convince the American public that they can return the nation to prosperity. Frankly, I don’t have much confidence in either guy, as they’re both full of “malarkey!”
So I decided to take a quantitative look and see how the market performed under each candidate’s party.
The results may surprise you.
The Study
I looked at the performance of the Dow Jones Industrial Average starting at the beginning of every presidential administration, going back to 1901. The S&P 500 data began in 1929 (including a proxy for the index before it actually started in 1957).
I also broke it down further to see what effect having a Congress that was the same or opposition party would have on the results.
Lastly, I wanted to get a sense of the long-term impact of the administration’s policies. A President’s actions don’t only impact the economy from inauguration day to inauguration day. They can have a long-lasting effect.
For example, some say President Clinton is the recipient of the good fortune that was a result of President Reagan’s policies. The argument can also be made that President Obama is suffering through the malaise caused by President George W. Bush’s mistakes.
The first table shows the performance of the Dow and S&P 500 with a Republican or Democrat President. There were 15 Republican terms and 13 Democrat.
Presidents
| Republican | Democrat | |
|---|---|---|
| Dow Jones Industrial Avg. | ||
| 1 Year | 5.61% | 8.30% |
| 3 Year | 20.85% | 30.32% |
| 5 Year | 49.49% | 42.72% |
| 10 Year | 110.05% | 109.10% |
| S&P 500 | ||
| 1 Year | 0.9% | 15.04% |
| 3 Year | 26.50% | 49.75% |
| 5 Year | 48.25% | 68.48% |
| 10 Year | 171.22% | 206.64% |
According to the numbers, when it comes to the Dow Jones Industrials, Democrats appear to be better for the market in the short term, while Republicans are in the intermediate term. Long term however, the results were identical.
In the broader S&P, however, the market performed way better under a Democrat President across all time periods studied.
Now, let’s take a look at how Congress impacted the results.
| Rep. Pres. w/ Rep. Congress | Dem Pres. w/ Dem. Congress | Rep. Pres. w/ Dem. Congress | Dem. Pres. w/ Rep. Congress | Rep. Pres. w/ Split Congress | Dem. Pres. w/ Split Congress | |
|---|---|---|---|---|---|---|
| DJIA | ||||||
| 1 Year | 8.61% | 9.77% | -1.23% | 25.05% | 15.26% | -24.65% |
| 3 Year | 1.73% | 33.88% | 25.27% | 87.90% | 66.97% | 11.52% |
| 5 Year | 40.20% | 45.90% | 41.14% | 69.30% | 142.39% | -15.65% |
| 10 Year | 11.15% | 111.03% | 163.42% | 135.37% | 338.12% | 63.49% |
| S&P 500 | ||||||
| 1 Year | -3.89% | 14.71% | -0.23% | 34.03% | 13.94% | N/A |
| 3 Year | -19.03% | 44.52% | 26.59% | 108.60% | 53.70% | N/A |
| 5 Year | -28.17% | 92.29% | 47.91% | 67.07% | 126.43% | N/A |
| 10 Year | -19.11% | 253.69% | 188.62% | 125.58% | 277.21% | N/A |
A couple of notes:
The sample sizes of a split Congress (meaning the House and the Senate were controlled by different parties), were very small. Only Ronald Reagan’s two terms in office for the Republicans and Woodrow Wilson’s second term for the Democrats.
For the Dow, Reagan’s two terms blew all other combinations away across every time period except five-year performance. When you add the S&P 500, Reagan’s five- and 10-year performance was best, but shorter term, investors did better with a Democrat in the Oval Office and Republicans in control of Congress.
If you eliminate Reagan’s term so that only larger sample sizes are used, a Democrat President with Republican Congress had the best one-, three- and five-year performance in the Dow. The 10-year champion was a Republican President and Democrat controlled Congress.
For the broader S&P 500, the market climbed much higher when a Democrat was in the White House. Short- and intermediate-term performance was enhanced when the Democrat President had an opposition Congress.
But perhaps the most surprising results were that long-term performance was much stronger when the Democrats were firmly in control of the government, returning 253.69% over 10 years or an average annual return of 13.57%.
The perception is that Republicans are more pro-business. I think their policies and plans back that up. But at least as far as the market is concerned, over 100 years of results suggest you’ll make more money on your stock investments with a Democrat in the Oval Office (how much of it you’ll get to keep is another story due to differing tax proposals).
Lots of factors go into who Americans select as their President. Foreign policy, tax policy, social issues, etc. The stock market is usually not a big consideration. If it was, George W. Bush wouldn’t have had a prayer against Al Gore, as the market more than doubled under Clinton’s last term. And Mitt Romney would be the Republican equivalent of Walter Mondale after President Obama’s 69.6% bull market.
But it’s useful to look back and see how the market has performed under various circumstances throughout history. After all, as Mark Twain said, “History does not repeat itself, but it does rhyme.”
Whoever wins the election, I hope it’s the right person. I’m just looking forward to November 7 when it’s all over and we can go back to watching those classy Cialis commercials during football instead of slanderous political attack ads.
Good Investing,
Marc
Any investment contains risk. Please see our disclaimer.
16 Responses to “Which Candidate is Better for Your Portfolio?”
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Marc is a senior analyst at Investment U. His investment career started out at the trading desk of Carlin Equities in San Francisco, CA, where he executed dozens of trades each day for his clients.
I found the data very interesting.
I agree with you about being glad when this election process is over. This is most disgusting campaign I have ever seen in my 50 plus years of voting. Each candidate is telling us, the voters, nothing. They just sling mud, lies, and fabrications. No concrete ideas of how to rebuild a slumping economy, no possibility of compromise, and certainly neither wants to admit we are in a “CRISIS”.
Too bad! We all are the losers because of this negative campaign that enters into every phase of our life. Hard to be positive when everyone around us is so negative. Shame on the lot of them and shame on us for not cleaning house at all levels.
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I completely agree Paul.
Thanks for the comments.
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I appreciate your numbers and the performance of the stock market information. However I don’t think this was a particularly good time to essentially tell voters that it is better for them financially to vote for Obama which in my reading of the article clearly will give people that impression.
I believe there is much more at stake here than returns on the stock market. Also, as you stated there are anomolies, like Ronald Reagan’s terms in office. Who is to say that if Romney gets in we will not have that same type of performance.
I just think sending this out may send the wrong message to voters and may act to sway their decision.
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“Who is to say that if Romney gets in we will not have that same type of performance”
Ronald Reagan’s “good times” were based on heavy deficit spending, we are still suffering today his decisions and legacy of indebtness.
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A history lesson which will not go over well with
Republicans.
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The one factor that is missing in the analysis is the effect of inflation during the selected time periods and political party in power. Might make an important adjustment. Don’t know!
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Great article based on FACT. So Obama is the clear choice for an investor
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Info is interesting & shows that, long term, the Democrats have been the BIG spenders.
What is best for the country and it’s future?
We will probably never find the answer now matter who is leading us down the tubes.
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I plan to vote for the person most likely to be good for this country. The article is absolutely useless. I don’t need this drivel clogging my email.
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Now put the real inflation numbers into this and I think you will clearly see the Republicans win in a landslide!!!!!
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I think you misstated your comment. You said
Whoever wins the election, I hope it’s the right person. I think you meant the left person.
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I think the boom during Clinton was a continuation of the Reagan boom. After Clinton lost congress, he moved to the right – supported cuts in capital gains and welfare reform.
The Nasdaq hit it’s bubble peak March 10, 2000. By the time Bush was inaugurated, Nasdaq had dropped 55%. After Bush’s tax cuts in 2003, income to the federal government hit a peak of $2.5 trillion in 2007. Things got bad after the democrats took over congress in early 2007. Bush increased spending $1 trillion, so he should be considered somewhat liberal.
Your sample size is very small and there could be a lot of other issues. Besides some democrats and republicans are more liberal than others. Obama is a lot more liberal than Clinton.
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Thanks for breaking it down like that Mark. I had read that somewhere before – perhaps contrary to popular belief – that returns were better under Democrats.
I’m not a US citizen, so I have no political axe to grind by writing this.
BTW, I don’t think election is any more important than the one before or the one after. IMHO, these guys are all moving further and further away from the people they are supposed to serve. That’s why I make it a point to call them “public servants” rather than “politicians”. It helps to remind them of who pays their wages!
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Your comment about “of course how much of it you’ll get to keep” is telling. Obama is a
socialist and will do his best to take as much of
our income as possible. As the old saying goes,
when they get all the money out of the higher income folks, the nanny state won’t have any other way of getting the benefits of it, so all one has to do is take a look at Russia and other
countries where socialism did not work – eventually they go broke. The stock market does not fail or succeed because of any president – it succeeds where people have jobs and the economy is in good shape. Too bad more people don’t realize this.
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Your comments and answers are flawed and meaningless,as well as statistically not valid
Too many variable factors involved.Obama is not
a typical democrat.He is much more radical
then other democrats,has never had a real job
actually not too smart.His interests are golf,
basketball ,and going on vacations etc.Romney has success written all over him and a proven job record.His wealth was not inherited but earned by hard work.
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Interesting, those in control of the stock market are neither republican or democrat. They hire whichever one they need at the time.
Your study is as meaningless as CNBC.
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