“All summer, and far into the autumn, perchance, you unconsciously [walked past] the newspapers and the news, and now you find it was because the morning and the evening were full of news to you. Your walks were full of incidents.
You attended, not to the affairs of Europe, but to your own affairs in Massachusetts fields.
If you chance to live and move and have your being in that thin stratum in which the events that make the news transpire — thinner than the paper on which it is printed — then these things will fill the world for you.
But if you soar above or dive below that plane, you cannot remember nor be reminded of them.
Really to see the sun rise or go down every day, so to relate ourselves to a universal fact, would preserve us sane forever.”
–Life Without Principle by Henry David Thoreau
PARADIGM SHIFT
Politics and the Stock Market
Donald Trump has been elected the next President of the United States.
Depending on your political leanings, this comes as either good news or bad news.
But on an economic level, how do markets react under Republican versus Democratic Presidents?
According to The Motley Fool, since 1957, the S&P 500 has achieved:
- 10.2% compound annual growth rate under Republican Presidents and 9.4% under Democratic Presidents.
- 9.9% median average return under Republican Presidents and 12.9% under Democratic Presidents.
So has the market performed better under Republicans or Democrats? Well, it depends on how you measure it.
On a year-by-year analysis, Democratic Presidents have seen better market returns. Over a longer-term analysis considering the entire President’s term of compounded returns, Republican Presidents win out.
What can we glean from this?
The fact here is that political parties play an almost indistinguishable role in how markets perform. Markets do well regardless of who holds the office of President.
Markets grow under both, and that’s growth we want to capture!
But there is an interesting pattern that has played out historically.
Ken Fisher observes that Republicans, on average, tend to have a better election year than their inaugural year.
In 2024, the election year, the S&P 500 has grown about 26%. The inaugural year for Trump will be 2025. The average growth for such a year is 2.6% (using data from 1925-2021).
Now remember, just because we quote the average doesn’t mean there aren’t big variations either side of that number.
In 2017, the S&P 500 saw 18.74% return in Trump’s first inaugural year.
In 2001, Bush’s inaugural year, it dropped -13.04% when the dot-com bubble burst.
Unless there’s a solid reason to think that a major weakness has been overlooked by nearly everyone, then odds are that this bull market can continue growing even if it means high volatility over periods of weeks or months.