As the election nears, how should investors be rooting? Republicans are usually seen as more "business-friendly" than Democrats, but has that translated to stock market outperformance?

PHOENIX - Aug. 8, 2024 - PRLog -- Contrary to conventional wisdom, stocks have historically done better under Democratic presidents. Starting with Eisenhower in 1953, we estimate the S&P 500 has delivered a 14.1% annualized total return when a Democrat was in the Oval Office, compared to 8.9% under Republicans. Overall, large-cap U.S. stocks returned 11.2% per year—enough to turn $1 into almost $2,000.

Presidents aren't all-powerful. They can't snap their fingers and raise GDP or lower inflation. The United States has rule of law, separation of powers, and due process. Translating words into action is difficult; there's a difference between campaign talking points and passing legislation.

When thinking about historical returns, consider world events: Federal Reserve interest rate policy, financial crises, wars, geopolitical events, bubbles, inflation, etc. The President doesn't necessarily have control over these things.

The S&P 500 returned 17.5% per year during the two terms of Democrat Bill Clinton, who benefited from the inflating of the dot-com bubble. Then Republican George W. Bush (-3.8% annual return) was elected in time for the popping of the dot-com bubble and the 9/11 terrorist attacks. Bush finished his second term near the trough of the Global Financial Crisis. Democrat Barack Obama (+16.2% annual return) benefited from the post-crisis recovery in stock valuations and a long stretch of zero interest rates. Stocks then did well under Republicans Ronald Reagan (+15.1%/year), George H.W. Bush (+14.7%/year), and Donald Trump (+15.9%/year) but struggled during the Nixon/Ford administrations (+3.9%/year) because of the OPEC oil embargo, Watergate scandal, and high inflation.

Vote with your conscience without letting your political views influence your portfolio. Many different factors determine the short-term direction of the stock market—the president is only one.

Diversification helps to protect against risks from shifting political dynamics. Get a second opinion from Trajan Wealth's financial advisors.

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