Advertisement

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".

Advertisement - Article continues below

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.

Advertisement - Article continues below

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.

Advertisement
Advertisement

Recommended

The British equity market is shrinking
Stockmarkets

The British equity market is shrinking

British startups are abandoning public stockmarkets and turning to deep-pocketed Silicon Valley venture capitalists for their investment needs.
8 Nov 2019
Why Wall Street has got the US economy wrong again
Economy

Why Wall Street has got the US economy wrong again

The hiring slowdown does not signal recession for the US economy. Growth is just moving down a gear, says Brian Pellegrini.
25 Oct 2019
There are lots of reasons to be bearish – but you should stick with the bulls
Stockmarkets

There are lots of reasons to be bearish – but you should stick with the bulls

There are plenty of reasons to be gloomy about the stockmarkets. But the trend remains up, says Dominic Frisby. And you don’t want to bet against the …
17 Jul 2019
What gold, bonds and tech stocks have in common
Stockmarkets

What gold, bonds and tech stocks have in common

"Risk off" or "safe haven" assets such as gold and government bonds have been doing well lately. But so have riskier tech stocks. That seems to defy c…
10 Jul 2020

Most Popular

Can Rishi Sunak save the economy with stamp duty cuts and half-price meal deals?
UK Economy

Can Rishi Sunak save the economy with stamp duty cuts and half-price meal deals?

John Stepek runs his eye over the chancellor's £30bn stimulus package and asks if it's enough to get the economy back on its feet after months of lock…
9 Jul 2020
An economics lesson from my barber
Inflation

An economics lesson from my barber

On reopening his shop after lockdown, Dominic Frisby’s barber doubled his prices. It’s all part of the post-Covid inflation process – and we’re going …
8 Jul 2020
What gold, bonds and tech stocks have in common
Stockmarkets

What gold, bonds and tech stocks have in common

"Risk off" or "safe haven" assets such as gold and government bonds have been doing well lately. But so have riskier tech stocks. That seems to defy c…
10 Jul 2020