Political Party Market Differences Throughout History

By Matt Blackman

Since 1928 there have been a total of 10 Democratic Presidents and 9 Republican. Using the S&P500 as a gauge, during the average Presidential term the index was basically flat for the first two years of the term but then from the mid-term low in September of the second year to the end of November in the year of the election, the S&P closed gained slightly more than 40% (see Chart 1).

During 10 Democratic terms, the index gained an average of 15% during the first two years and then skyrocketed more than 40% in the last two years of the term (see Chart 2). 

During the nine Republican terms, gains were a little more muted. During the first two years of the average term, the S&P500 lost an average of about 5% to the mid-term September. From then to the end of November of the election year, the S&P gained just over 30%. Democratic Presidents handily outperformed their Republican counterparts in the stock market department but more about that later.

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Chart 1 – Chart showing the impact of 19 Presidential Cycles between 1928 and the last federal Presidential Election in 2004 on the S&P500 Index. As you can see, the index remained more or less flat for the first two years then took off two years before the next election gaining an average 35%. Chart provided by www.thechartstore.com  

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Chart 2 – Composite chart of the S&P500 Index through 10 Democratic Presidential cycles since 1928 showing a rise of roughly 15% in the first two years and then a better than 40% surge in the two pre-election years. Chart provided by www.thechartstore.com

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Chart 3 – In comparison, the S&P500 Index fared less well over the term of the average Republican President. In nine cycles, the index lost about 3% in the first two years and then gained 27% in the next two years leading into the next election. Chart provided by www.thechartstore.com

Since 1928, Democratic administrations have been kinder to the S&P500 than have Republican administrations. Why? Theories abound. Republicans could argue that Democrats have a habit of increasing spending and letting inflation gather more momentum than do Republicans and this has been good for stocks. This was certainly the case with the Administration of Jimmy Carter during which the prices of oil and gold reached their all-time nominal high prices. President Carter handed the reins over to Ronald Reagan who in 1980 was left with the unenviable task of putting America’s economic house back in order. He cut taxes and greatly increased defense spending: both controversial moves at a time of skyrocketing budget deficits. But the tactic worked heralding in what was to be the longest bull market in history.

Another reason for the difference is that the Republican composite chart includes the term of President Herbert C. Hoover from 1928 to 1932, the worst Presidential cycle during the Twentieth Century. By the time his term was over, the S&P was cut to just one-third of its 1928 level, a drop of 64%! Take that term out and the Republican history looks better: a two percent loss in the first two years followed by a 37% rise over the subsequent two years going into the next election.

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Chart 4 – Composite of 8 Republican terms showing their performance with the start of the Great Depression taken out of the equation – still not as good as the Dems but a lot better.  Chart provided by www.thechartstore.com

Those results also don’t include the S&P500 performance for the second term of Republican President George W. Bush from 2004 through 2008. So far (to September 21) the index is up more than 11% over his term and we have yet to see the usual September or October mid-term election low (see Chart 5).

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Chart 5- Monthly chart showing the S&P500 Index to the mid-term of George W. Bush. For the first half of his term, the index gained 10.92% (assuming 1320 is still the mid-term point at the end of December).  Chart provided by www.Metastock.com

We’ll keep you posted so be sure to stop by again soon!