Historically, has the stock market performed better under Democratic or Republican presidents? The answer may surprise you.
of S&P 500 (^GSPC 0.54%) Due to its scope and diversity, the index is widely regarded as the best barometer of the overall U.S. equity market. The index tracks 500 of the largest U.S. companies across all 11 market sectors, covering approximately 80% of the nation’s stocks by market capitalization.
Since Joe Biden was inaugurated as the 46th president of the United States on January 20, 2021, the S&P 500 has returned 43% and 11% annualized, but with just a few months until the next presidential election, investors might be interested to see how the stock market has performed under other Democratic and Republican presidents.
Average stock market returns under Democratic and Republican presidents
The S&P 500 was created in March 1957. Since its inception, the index has returned 12,510%, excluding dividend payments, which equates to a compound annual growth rate (CAGR) of 7.4%. This doesn’t mean that the S&P 500 has grown 7.4% every year, but rather that it has returned an average of 7.4% every year since 1957.
The chart below shows the CAGR of the S&P 500 during each President’s term, as well as the average CAGR during the terms of Democratic and Republican Presidents. Dividends are excluded.
The S&P 500 has grown at an average annual rate of 9.3% under Democratic administrations and 10.2% under Republican administrations since its inception in 1957. Chart includes S&P 500 performance data through July 3, 2024.
Since 1957, the S&P 500 has achieved an average CAGR of 9.3% under Democratic presidents and 10.2% under Republican presidents. Based on this information, it is reasonable to conclude that the stock market has performed better when Republicans have controlled the White House.
Don’t be in such a hurry. Statistics are easily manipulated. Let’s look at the issue from a different perspective. The chart below shows the returns of the S&P 500 every year since 1957. It also shows the median one-year returns under Democratic and Republican presidents. Dividends are excluded.
The S&P 500 has returned an average of 12.9% per year under Democratic administrations and 9.9% per year under Republican administrations since its inception in 1957. Chart includes S&P 500 performance data through July 3, 2024.
Since 1957, the S&P 500 has achieved an average one-year return of 12.9% under Democratic presidents and an average one-year return of 9.9% under Republican presidents. Based on this information, it is reasonable to conclude that the stock market has performed better when Democrats have controlled the White House.
So which political party is best for the stock market? That depends on how you analyze the data. The S&P 500 has seen good and bad years under Democratic and Republican administrations. But the question itself is ultimately irrelevant for two reasons. First, it is macroeconomic fundamentals, not political parties, that drive the stock market. Sure, presidential policies and congressional legislation can have a big impact at times, but no one person or political party has total control.
Second, selectively buying and selling stocks based on which party controls the White House is a bad strategy that has historically led to underperformance. Goldman Sachs “Investing in the S&P 500 only during Republican or Democratic presidencies would result in larger losses than investing in the index regardless of which party is in power,” it found.
Historically, the stock market has enriched patient investors regardless of politics.
With the 2024 election looming, both presidential candidates may claim it’s good for the stock market. They may back up their claims with data. But investors should ignore such statements. Statistics can be manipulated to fit different policies, and stock prices are driven by macroeconomic factors beyond the control of either party.
To illustrate my point, consider the dot-com bubble, the Great Recession, and the COVID-19 pandemic. All three of these events led to stock market crashes that the president at the time could not have avoided. You can’t praise Democrats for overvaluing the entire technology industry in the mid-1990s, and you can’t blame Republicans for staying in power when years of lax lending standards led to the 2008 financial crisis.
More importantly, history has shown that patient investors can reap big rewards no matter which party controls the White House. The S&P 500 has returned 2,080% including dividends over the past 30 years, which equates to 10.8% per year. Because this period encompasses a wide range of economic changes, investors can be reasonably confident that similar gains will be possible in the future.
This doesn’t mean that the S&P 500 will return 10.8% every year, but rather that the index will return about 10.8% (with a margin of error of 1 percentage point) every year for the next few decades.
Trevor Jennewine has no position in any of the stocks mentioned. The Motley Fool owns shares in and recommends Goldman Sachs Group. The Motley Fool has a disclosure policy.
