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Returns By Political Parties Show Similar Outcomes

By Derek Moore

Source: Authors Calculations based on NYU Stern Historical S&P 500 Total Returns and Wikipedia 

For this article I decided to look at average annual returns for presidents going back nearly 100 years. Back to 1923 to be exact which would take us to President Coolidge’s term. I also used the page titled “ Party divisions of United States Congresses” from Wikipedia to determine the Presidents by year along with the Senate and the House. I did not start on inauguration day but instead used the start of the year they took office. This started as merely an exercise for me to see what the averages looked like. 

I used a simple average of the total return where each year’s annual return was summed and then divided by the number of years. I note this because this may not actually reflect an investor’s compounded annual growth rate.

Part of the reason I stopped 97 years ago is the data. Prior to 1928, it was a bit more work to calculate the returns plus make an estimate of the additive return from dividends. I was also interested in seeing the market returns just prior to the start of The Depression where President Hoover’s term started.

Something I wanted to examine is whether one party controlling all three (President, Senate, House) makes a large difference in the returns. Above we can see an examination of eight different combinations. Note, once again I utilized the website Wikipedia. For the Senate controlling party, there is a little bit of an estimate due to when a new congress takes effect and any changes mid-year.

 For example, the Senate went republican from 1/20/01 to 5/24/01 until a senator defected to the democratic side and remained that way from 5/24/01 to 3/3/03. To keep things simple, I assigned the entire congressional term as democratic. Someone with more time might dig in and do a definitive accounting down to the days and weeks of these constructs. The goal was to just see how different (or similar) the return averages were. Some might argue that I should have begun the returns from election night on as often markets can react. But again, I will leave that for someone else to put together. 

What I found is when comparing a full Republican Control (President, Senate, House) to full Democratic control. The simple average returns were about 16.57% for the Republican’s and 13.95% for the Dems. You can also see the number of instances of the occurrences of each construct. 

You can also see that various combinations are quite rare. Only 2 of the 97 years examined had a Republican President and House but Democratic Senate. This was George W. Bush’s first two years in office. You might remember the tech selloff and then 9/11 happened during those years. If the Presidency went Democratic along with the house only leaving the Senate Republican, it would be the first time. I did look back and found an occurrence back in the late Eighteen Hundred era if you were wondering. 

Back in July, Forbes ran a piece that looked at Presidents from Trump to Truman that examined the year by year results and cumulative returns. It's important to remember that it would be best to take those cumulative returns and annualize them to better compare the one term presidents to the two term presidents. The article pointed out sometimes that some of their timing was better than others in taking over during a bubble or at the bottom of a downturn.

So, in a pre-election article I thought our readers might be interested in this type of comparison. Many advisors and their clients have been trying to figure out whether one party winning vs. another might cause significant downturns in markets. Based on the numbers in the graph I would say just be hedged and know that history is on the market’s side. 

Links to the Sources: 

Party Divisions in US Congress

Shiller Historical Data 

NYU Stern Business School & Aswath Damodaran Historical S&P Returns

Cover photo of past Presidents from Forbes