The question of whether a U.S. president from one political party is better for the stock market than one from another party is more nuanced than it seems. Investors often debate this topic, but historical data suggests that the president’s political affiliation might not be as significant for stock market performance as assumed.
Historical Market Trends Under Different Administrations
A chart from Truist’s Keith Lerner illustrates the trajectory of the S&P 500 since 1948, shaded to indicate the president’s political party. No obvious patterns emerge, except for the market’s general upward trend over time. Lerner notes that markets have presented opportunities and risks under both political parties. “Elections matter, but it’s important not to look at them in isolation. The business cycle, valuations, geopolitics, monetary policy, and other factors also play crucial roles,” Lerner writes.
Ryan Detrick from Carson Group echoes this sentiment, emphasizing that economic fundamentals, profits, inflation, and Federal Reserve policy are more critical than the president’s identity. Historically, data from Schwab’s Liz Ann Sonders and Kevin Gordon shows that investing in the S&P 500 exclusively during Republican administrations would have grown a $10,000 investment in 1961 to over $102,000 by 2023. In contrast, the same investment during Democratic administrations would have grown to more than $500,000.
The Bigger Picture: Market Drivers Beyond Politics
It’s essential to recognize that the person occupying the White House is just one of many variables influencing the stock market. While presidential policies can impact sentiment and economic expectations, other factors like consumer demand, business innovation, and global events also drive market performance.
Consumers and businesses continuously demand better goods and services, pushing entrepreneurs to innovate and expand. This dynamic leads to economic growth, improved living standards, and rising corporate earnings, which in turn drive stock prices higher. Thus, while political leadership can affect certain sectors and short-term market movements, the broader economic trends often play a more substantial role.
Recent Economic Indicators and Market Sentiment
Consumer Spending: According to JPMorgan, Chase Consumer Card spending data showed a slight increase of 0.3% year-over-year as of July 8, 2024. Conversely, Bank of America reported a 1.6% year-over-year decline in total card spending per household for the week ending July 13, partly due to Hurricane Beryl.
Unemployment and Industrial Activity: Initial unemployment claims rose to 243,000 for the week ending July 13, from 223,000 the previous week. Despite this increase, the levels remain historically consistent with economic growth. Meanwhile, industrial production and manufacturing output saw month-over-month increases of 0.6% and 0.4%, respectively, in June.
Housing Market: Homebuilder sentiment dropped as buyers await lower interest rates, but builders remain optimistic about future sales. New home construction rose by 3.0% in June, and building permits increased by 3.4%. Mortgage rates slightly decreased, with the average 30-year fixed-rate mortgage ticking down to 6.77%.
Gas Prices and Office Occupancy: Gas prices fell to an average of $3.50 per gallon, driven by reduced demand. Office occupancy rates remain low, with the weekly peak occupancy at 56%, reflecting ongoing shifts in work habits post-pandemic.
Market Outlook: Navigating Uncertainties
Despite various economic indicators showing mixed signals, the overall outlook suggests a “Goldilocks” scenario where inflation cools without triggering a recession. The Federal Reserve’s tight monetary policy aims to control inflation, and while this creates challenging financial conditions, it also prevents economic overheating.
Stocks, as discounting mechanisms, often bottom out before a significant policy shift from the Fed. Although recession risks are elevated, the financial health of consumers and businesses remains robust, providing a buffer against severe economic downturns. Unemployment rates are low, and wage growth is strong, while many corporations have secured low-interest debt and maintain healthy profit margins.
Conclusion: Long-Term Perspective for Investors
For long-term investors, market fluctuations, recessions, and bear markets are part of the journey towards generating returns. While political changes and economic policies influence market conditions, the enduring drivers of market growth are innovation, consumer demand, and economic expansion. History suggests that markets have thrived under various administrations, and a diversified, long-term investment strategy remains the best approach to navigating these complexities.