{"id":199886,"date":"2023-12-07T10:15:00","date_gmt":"2023-12-07T15:15:00","guid":{"rendered":"https:\/\/ibkrcampus.com\/?p=199886"},"modified":"2023-12-07T13:08:52","modified_gmt":"2023-12-07T18:08:52","slug":"people-care-about-elections-markets-dont","status":"publish","type":"post","link":"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/securities\/macro\/people-care-about-elections-markets-dont\/","title":{"rendered":"People Care About Elections. Markets Don’t."},"content":{"rendered":"\n

Key takeaways<\/h2>\n\n\n\n

Markets don\u2019t care about elections<\/h3>\n\n\n\n

Presidential elections haven\u2019t historically affected markets or the economy, despite who or which party wins.<\/p>\n\n\n\n

Stay fully invested<\/h3>\n\n\n\n

Staying invested during Democratic and Republican administrations did better than investing only during single-party rule.<\/p>\n\n\n\n

Policy over politics<\/h3>\n\n\n\n

Monetary policy has had a greater market impact. Presidents historically were either helped or hurt by Federal Reserve actions.<\/p>\n\n\n\n

The 2024 presidential election is less than a year away. As a market strategist, I\u2019m often asked what it may mean for financial markets if a Republican or Democrat is elected. My answer is, \u201cPeople care about elections. Markets don\u2019t.\u201d Historically, who\u2019s president and which party is in power hasn\u2019t impacted market performance, the economy, or the government. Here\u2019s why.<\/p>\n\n\n\n

Markets have performed well under both parties<\/strong><\/h2>\n\n\n\n

Neither party can claim superior economic or market performance. The stock market posted positive returns across most administrations, with the rare exceptions of presidencies that ended in deep recessions. The S&P\u00ae 500 Index has delivered an average annual return of approximately 10% since it started in 1957 through both Democratic and Republican administrations.1<\/a><\/sup> The US economy also expanded around 3% during that period.2<\/a><\/sup><\/p>\n\n\n\n

The stock market\u2019s return was negative for a presidential administration only when the country was in a financial crisis (2008) or experiencing a stagflationary spiral (1973).3<\/a><\/sup><\/p>\n\n\n\n

Investors would\u2019ve been better off staying invested<\/strong><\/h2>\n\n\n\n

Hypothetically, the best-performing portfolio during the past 123 years was the \u201cbipartisan\u201d one that stayed fully invested during both Democratic and Republican administrations. A \u201cpartisan\u201d portfolio, only invested during single-party rule, underperformed by millions of dollars. (See graphic below.) The different results are, in part, because of the US stock market\u2019s consistent rise even during two world wars and major financial crises (the Great Depression and the 2008-2009 Global Financial Crisis). The more time investors spent participating in markets, the better their investments did.<\/p>\n\n\n\n

\"Investors<\/figure>\n\n\n\n

US economy isn\u2019t radically re-engineered<\/strong><\/h2>\n\n\n\n

Investors are often concerned that elected officials will radically re-engineer the economy. In fact, the composition of the US economy has been consistent for decades. Even single-party rule periods didn\u2019t result in significant change. The percentage of \u201csubstantive\u201d bills by Congressional term hasn\u2019t increased when one party controlled the executive and legislative branches.4<\/a><\/sup><\/p>\n\n\n\n

Neither party can claim fiscal responsibility<\/strong><\/h2>\n\n\n\n

Federal spending has outpaced taxes and other sources of government revenue in most years and across most administrations.5<\/a><\/sup> No party can claim fiscal responsibility. It hasn\u2019t been a significant issue for a variety of reasons, including the US having the world\u2019s largest reserve currency and nominal economic growth outpacing the interest expense as a percent of gross domestic product (GDP). Currently, interest outlays as a percent of GDP are below 2%, a low bar for growth to surpass.5<\/a><\/sup><\/p>\n\n\n\n

Monetary policy matters more<\/strong><\/h2>\n\n\n\n

For all the focus on the executive branch, I\u2019d argue that it\u2019s monetary policy that matters more. The old adage holds true: Don\u2019t fight the Fed. Historically, presidents have been hurt or helped by monetary policy conditions. For instance, both Presidents Reagan and Clinton benefited from consistently falling interest rates. Both Presidents George H.W. Bush and George W. Bush were hurt by Fed tightening, an inverted yield curve, and a recession. President Obama benefitted from a benign rate environment (minus a brief moment in 2015-2016) during his term, and President Trump was the unfortunate recipient of tighter policy during his first two years.6<\/a><\/sup><\/p>\n\n\n\n

Markets don\u2019t care if you don\u2019t like who\u2019s president<\/strong><\/h2>\n\n\n\n

Investors don\u2019t have to love what is going on in Washington, DC, to prosper in the markets. In fact, the S&P 500 historically performed the best when the president\u2019s approval rating was in the low range \u2014 between 35 and 50. 7<\/a> <\/sup>That means the market had delivered some of its best returns during periods when half or more of the country didn\u2019t approve of the job the current administration was doing! Still, it\u2019s hard to discern any direct relationship between a president\u2019s popularity, the health of the US economy, and the performance of financial markets.<\/p>\n\n\n\n

Investment opportunities continue despite who\u2019s president<\/strong><\/h2>\n\n\n\n

Investors should be less interested in politics and more interested in private-sector business leaders who are going to harness artificial intelligence and robotics. They may be able to help cure debilitating diseases, evolve the nation\u2019s energy sources, and develop new technologies and industries that aren\u2019t even on the radar. History suggests that innovations \u2014 and investment opportunities \u2014 will continue irrespective of who wins a presidential election. For instance, since the 2008 election, many innovations were introduced during the tenure of both Democratic and Republican presidents. (See graphic below.)<\/p>\n\n\n\n

Innovations since the 2008 election<\/h3>\n\n\n\n
\"Innovations<\/figure>\n\n\n\n

For illustrative purposes only.<\/p>\n\n\n\n

—<\/p>\n\n\n\n

Originally Posted December 5, 2023 – <\/p>\n\n\n\n

People care about elections. Markets don\u2019t.<\/a> by Invesco US<\/p>\n\n\n\n

Footnotes<\/strong><\/p>\n\n\n\n