Does the President Matter to Investors?
To say the 2016 Presidential election has been interesting is probably an understatement. Whether you’re for four more years of “Hope and Change” or you want to “Make America Great Again”, there is certainly plenty of media attention to keep everyone interested. Add to that, the possibility of the first viable third-party candidate since Ross Perot in the 1992 and John Anderson in 1980, and the campaign should hold most everyone’s interest through Election Day.
It is also interesting to see how media coverage has changed. With the proliferation of social media and all-news cable channels, the national television networks only devoted one hour per evening to both the Democratic and Republican conventions. Because of that, more people watched The Bachelorette and American Ninja Warrior at eight o’clock than watched the conventions at 10 o’clock on those same networks. We’re not sure what that says about us as a society; we’ll leave that to the political analysts.
While we will never discuss political positions with clients (a great way to have ex-clients), one question that does come up frequently is “How does electing a Republican or Democrat affect the stock market?” Not surprisingly, at least to us, is that the perception does not match the reality.
In general, a higher percentage of investors surveyed think a Republican president will be better for their investments, 43 percent, than a Democratic president, 24 percent. Thirty-two percent surveyed said it doesn’t matter. Also, 64 percent of investors surveyed think presidents have a little influence on stock market performance, while 23 percent think they have a lot of influence and 14 percent think they have no influence.
The reality, however, is very different. Since 1961, average annual returns of the S&P 500 Index during Republican administrations are 8.7 percent. The highest annual returns, 18.1 percent, were during Gerald Ford’s term in office and the lowest annual returns, -2.9 percent, were during George W. Bush’s administration. The only other negative returns, -1.6 percent, happened during the Richard Nixon years.
Contrary to popular belief, however, the average annual returns during Democratic administrations are significantly higher, 13.3 percent. The highest returns, 17.2 percent happened during the Bill Clinton administration. The lowest annual returns, 10.3 percent, were during Lyndon Johnson’s term in office. Even the much-maligned Jimmy Carter oversaw annual returns of 11.7 percent.
Does this mean investors should invest in the stock market only during Democratic administrations and exit when Republicans take over? Of course not!! Investors still made money during those Republican terms of office. And when you’re out of the market and in cash, your returns are much lower than the 8.7 percent of Republican administrations.
The perpetual debate as to whether one party can better handle the presidency than the other, at least as far as investing is concerned, is a moot point. From the Bay of Pigs to the Watergate Scandal to Persian Gulf War to the current-day terrorist attacks, every President faces challenges events and must conquer crises during their time in office. But as a country, we have always found a way to overcome them. The bottom line is $10,000 invested in 1961 would have grown to almost $1.9 million by the end of 2015.
So what really drives the investment markets? As always, it’s a combination of company or business profitability, interest rates, investor confidence and expectations, and global markets. And what is means for investors is what we speak of often in these pages.
Have a plan, invest regularly, invest unemotionally and call us if you have any questions or concerns.