Tuesday, July 28, 2020

The Great GOP Stock Market Myth

The market commentators on TV are at it again. The high-wire stock market will not only avoid virus-induced catastrophe, they tell us, but stocks will then soar to new highs. Unless Democrats capture the White House. In that case, “Look out below!”

Wall Street has long believed stocks do better with a Republican POTUS. As a wealth manager quoted in the Financial Times explains: “Historically, equity markets have favored Republican presidents as they generally have more market-friendly policies.”

Except . . . historically the stock market has done no such thing. Since 1976, FT reports, the average annualized return under
Democratic presidents has been 14.3 percent, against 10.8 percent under Republicans.

In a really long-term comparison, 1920 to 2016. the Democrats win by a landslide. Annualized return for the Dems: 10.83 percent. Republicans (penalized by both the Great Depression and the Great Recession) 1.71 percent.

Why do Wall Streeters cling to the myth that Republican presidents lead to bigger investment gains? Perhaps they're too credulous. Republicans may talk “market friendly” and Democrats may threaten tougher taxes and regulations, but politicians' ability to influence the economy and stock prices is probably less than they would like us to believe.


Jim Gust said...

I question your numbers.

The reason that people believe that the Democrats are bad for stocks is that Democrats advocate socialism and higher taxes, which destroys value and retards economic growth, while the GOP advocates and produces lower taxes, enhancing value.

Jimmy Carter's terrible economic policies caused him to be a one-term President. Reagan was supposed to reverse that on day one? Of course not. ERTA was enacted during his first year, but many elements were so delayed that the real cut in taxes wasn't felt until 1982. So the first years of poor performance under Reagan should be credited to Carter.

Similarly, the tax reform under Reagan ignited a tremendous bull market that was sustained into the Clinton administration. We give Clinton credit, even though the work was done under Reagan? Not in my book.

Politicians do affect the course of the economy and the stock market, but the boundaries of their impact do not correspond perfectly with their time in office.

JLM said...

President Nixon once remarked that the American economy was truly remarkable. It could survive anything Washington tried to do to it.