Blue Haven

Guessing wrong on election impact

By June 18, 2024 No Comments

Two things are certain about the upcoming election: First, either Joe Biden or Donald Trump is going to win. Second, the financial media is going to tell you how one is better than the other for your investments. The reality is that Presidents have very little impact on stock market performance. Stocks have risen over time regardless of who is in office. The only costly mistake you can make is thinking the market will perform a certain way based on who wins the election.

A history of rising markets

Since 1928 the stock market has spent the majority of its time going up even with multiple stock market crashes along the way. Dimensional Fund Advisors has a great graph that lets you see market performance by each President, it’s a fun tool to mess around with:

So first things first, stocks can do well whether a democrat or republican is President. And for further evidence on why you should keep personal political preferences from impacting your investments, look at the graph below. We look at the growth of a $10,000 investment in the market made only when a republican is President versus when a democrat is President. Then each of those is compared to an initial $10,000 investment left in the market with no preference for either political party:

$10,000 fully invested since 1950 turned into more than $3 million! That trounces the growth if you played political favorites. So while you may not like the outcome of the upcoming election, don’t let that dissatisfaction change your investment plan.

Recent lessons from 2016 & 2020

So we talked about the broader market doing well regardless of who is President. But one of the other things you will hear a lot about is how certain Presidents are better for certain industries than the other. For example, President Biden was thought of as being good for the clean energy sector. Conversely, President Trump was thought to be good for traditional energy. Yet, when we look at the performance of each of those sectors under each President, we find that the opposite sectors performed the best.

Clean energy stocks did great under Trump and terribly under Biden. Big oil stocks did poorly under Trump and have performed exceptional under Biden.

Is this performance a result of anything each President did? Probably not. A pandemic shut down the economy in 2020 which tanked the price of oil and traditional energy stocks. Meanwhile, capital intensive clean energy start ups benefitted from very low interest interest rates during Trump’s term as well as the initial adoption wave of electric vehicles.

Then opposite forces took hold during Biden’s Presidency: the Russia/Ukraine war spiked the price of oil and led to greater demand for the output of domestic energy companies. Then decades high interest rates made the cost benefit analysis of clean energy less favorable.

We see another example when we look at defense stocks. The defense and aerospace industry is typically thought of as benefitting from republican policies that generally include more defense spending than democrats. However, this industry under performed the market under Trump and is out performing the market under Biden:

Leave the guessing games to someone else

Whether its the talking heads on TV, a family member, or a co-worker, you should leave the guessing games to someone else. No matter what happens with the election, external forces are going to have a bigger impact on market performance than the President will.

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