The stock market loves Democratic presidents more than Republicans

Democratic presidents are better for stocks than Republicans.

In its year-ahead outlook, analysts at Bespoke looked at the effect Washington can and does have on the stock market. And at least when looking at a simple breakdown of the party in the White House and the returns on Wall Street there is no argument: Democrats are better.

Here’s Bespoke (emphasis added):

With such strong returns so far during President Obama’s tenure, the issue of which party is better for the stock market is less and less debatable. As we have noted in prior Bespoke Reports, in both of his election campaigns, there was a widespread view that President Obama and Democrats in general would be bad for the stock market. Yet, here we are seven years later looking at a gain of nearly 125% for the DJIA since President Obama took office. There really shouldn’t be any debate; on a historical basis, Democratic presidents are better for the stock market. The saying that Republican Presidents are better than Democrats for investors continues to be one of the bigger misconceptions there is in the investment world.

Now, of course all presidents spend at least some chunk of their time in office dealing with decisions made by prior administrations.

George W. Bush, for example, took office right as the tech bubble was peaking, which you could argue was in part stoked by a Clinton Administration loathe to nudge Alan Greenspan’s Fed towards actions that could cool off the economic boom seen during the 1990s.

The Obama Administration, in contrast, was left with the aftermath of a housing bubble that was fostered under Bush’s watch, but also benefited from the tailwind of a recovery that primarily helped financial assets. This, in turn, has sent the stock market dramatically higher.

But you can sort of caveat this argument away until you’re left with something like, “There are presidents and there is a stock market and these entities both do things,” but as Bespoke writes:

The argument can be made that you can’t just look at the returns of a President while he was in office as it often takes time for a President’s policies to take effect and for the policies of the prior Administration to wear off. Just as Democrats argue that you can’t pin the job losses of Obama’s first few months in office on him, Republicans contend that the market was so far down when Obama took office that all it could do was go up. No method, no matter how consistently applied is perfect, so there will always be detractors, but the method we used was consistent for each President, so it’s hard to argue that it favoured any one specific party.

Additionally, Republican performance is severely dragged down by the 82.8% decline in stocks seen during the Hoover administration.

But as this table shows, the returns for Democratic presidents are simply better than Republicans.

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