Stocks don’t care who the president is

Tune out all the breathless talk about what Trump or Clinton could mean for stocks, says Andrew Van Sickle. The market doesn’t care who’s in the White House.

793-Clinton-1200

Will she make it to the White House? The markets won't mind either way

With Donald Trump and Hillary Clinton virtually certain to be the two candidates in the American presidential election in November, talk is turning to what their presidencies might mean for equities. But investors should ignore all the analyses. Everyone presumes that whoever wins will have "a significant and immediate effect on both the economy and the markets", says Barry Ritholtz on BloombergView.com. In fact, "markets and the economy determine which candidate does well, and not the reverse".

Consider the evidence. You might expect a candidate from the traditionally pro-market Republican party to be better news for stocks than a typically more protectionist and anti-business Democrat. But studies suggest the latter is much better for stocks.

According to Bespoke Investment Group, the Dow Jones index gained an average of 83% under Democratic presidents, compared to 45% under Republicans, between 1901 and 2014. Sam Stovall of S&P Capital IQ looked at the S&P 500 between 1945 and 2015. He found that the average annual gain under a Democrat was 9.7%; under a Republican one, it was 6.7%.

Gerald Ford, a Republican, topped the table. Under him the S&P gained an average of 18.6% a year. Democrat Bill Clinton came second with a meanyearly gain of 12.6%. Stocks only fell during two administrations: those of George W Bush and Richard Nixon.

Take a closer look and it's clear that Ritholtz is right. Presidents have little control over the various factors affecting the broader economic backdrop, which is key to their performance. Ford's time in office coincided neatly with the global recovery from the oil crisis of the early 1970s.

Clinton presided over investors' growing exuberance over the internet; the bubble had not lost much air when he left office. The dotcom collapse and the credit crunch hit George W Bush's tenure, while the Great Depression hurt Herbert Hoover in the 1930s.

Presidents' policies are often watered down in Congress in any case. So while a president and his administration can help provide a tailwind to a bigger trend as Ronald Reagan's tax cuts fuelled the recovery from the 1970s inflation spike they are unlikely to drive one.

The broader point here is that ascribing stocks' performance to a particular person is a classic investors' error: seeing patterns where none exist. Correlation is not causation, and stocks go up most of the time anyway. So tune out all the breathless talk about what Trump or Clinton could mean for this sector or that index. The market doesn't care who's in the White House.

Recommended

Kieran Heinemann: the history of shareholder capitalism
Investment strategy

Kieran Heinemann: the history of shareholder capitalism

Merryn talks to Kieran Heinemann, author of Playing the Market: Retail Investment and Speculation in Twentieth-Century Britain, about the history of t…
17 Sep 2021
Why it pays to face up to your investment mistakes
Investment strategy

Why it pays to face up to your investment mistakes

Buying stocks can be a complicated business. But selling stocks can be tricky, too – even if you sell for the right reasons. Max King explains how to …
17 Sep 2021
Are stockmarkets heading for a fall?
Stockmarkets

Are stockmarkets heading for a fall?

America’s S&P 500 stockmarket index has gained 30% over the past year. Valuations may be high, but that doesn't necessarily mean investors should sell…
17 Sep 2021
A nightmare 1970s scenario for investors is edging closer
Investment strategy

A nightmare 1970s scenario for investors is edging closer

Inflation need not be a worry unless it is driven by labour market shortages. Unfortunately, writes macroeconomist Philip Pilkington, that’s exactly w…
17 Sep 2021

Most Popular

The times may be changing, but don’t change how you invest
Small cap stocks

The times may be changing, but don’t change how you invest

We are living in strange times. But the basics of investing remain the same: buy fairly-priced stocks that can provide an income. And there are few be…
13 Sep 2021
Two shipping funds to buy for steady income
Investment trusts

Two shipping funds to buy for steady income

Returns from owning ships are volatile, but these two investment trusts are trying to make the sector less risky.
7 Sep 2021
How to stop recurring subscriptions becoming a drain on your money
Personal finance

How to stop recurring subscriptions becoming a drain on your money

Tracking and pruning subscriptions isn’t as easy as it sounds. Here's how to take charge.
14 Sep 2021