The stock market doesn’t care who wins the elections. Investors thinking which party will help their portfolio more, the answer is simple. Elections don’t impact equity prices. It won’t matter who wins yesterday’s elections. Media reported highlight which party favors which stocks. Republicans like spending on defense. Meanwhile, Democrats favor sustainable energy and will support green companies. Yet, history shows stocks do well in their own long-term.
During the campaign, President Donald Trump warned Americans that a Joe Biden victory can crash the stock market. Other analysts think that a “Blue Wave” can tank stocks and wipe out gains for the year. Democrats got the lion’s share of campaign contributions. Biden managed to collect $78 million in donations versus $18 million for Republicans. Wall Street’s show of support to Biden seems to assume that the market will do better under him. This is despite the fact that stocks have performed better under Trump than the previous administration.
Which Party is Better for Stock Markets?
Since 1942, the winning party made no lasting impact with the broad S&P 500. Whether it’s the Dems or the GOP hold the majority, stock prices remain constant. Who controls each chamber can matter. LPL Financial data reported that average stock returns were 17.2% under a split Congress. Meanwhile, returns dropped to 13.4% when Republicans controlled both chambers. Numbers fell down further at 10.7% when Democrats held both chambers.
Ryan Detrick of LPL Financial said: “markets tend to like checks and balances to make sure one party doesn’t have too much sway.” A split, balanced Congress makes for the best stock performances.
Don’t Read Into The Numbers Too Much
CFRA chief investment strategist Sam Stovall advised against reading too much. He said: “It’s a good example of how you can have data tell whatever story you want. If you want to favor the Democrats, talk about the presidency. If you want to favor the Republicans, talk about House control.” Bob French of McLean Asset Management, agrees. He noted: “We can go in and slice and dice the data however we want and most of the time come up with whatever answer we want.”
Stovall checked the data on market performance under six scenarios. The first two are sweeps of the White House and Congress by each party. The third and fourth ones involve a White House with a split Congress. The fifth and sixth deal with a White House by one party and Congress controlled by the other. Data includes all election results until 1945. Stovall reported stocks performed best under a Democrat president and a split congress. Next, best is a Democrat president while Republicans control both Congress and Senate.
Go For Disruptor Stocks
There are stocks termed “politically sensitive.” These are companies where success depends on which party is holding the reins. But they don’t always work as intended. When Barack Obama won in 2016 and signed tighter gun control laws, shares of gun companies went up. Stocks of Boeing, America’s biggest defense company, went up when Trump won in 2016. One of Trump's battle cries was rebuilding the US military. Having these types of stocks can be maddening every four years.
The best stocks are the disruptor type. These are the companies that changed the status quo. Disruptors are impervious to changes in the political climate, and often survive transitioning ideologies. As long as they continue offering a better alternative, these stocks will stay up.
Three More Reasons
The Motley Fool lists three reasons why stock markets are insulated from elections. First, markets usually perform well during election years. Historical data shows that election year performance usually yields positive results. Second, stock prices rise up under most presidents. Whether you’re supporting the GOP or the Dems, your portfolio’s value will grow.
Finally, the coronavirus will continue lording over the economy. The market will rise and fall based on how well America will address the pandemic. Also, the arrival of a working vaccine will be the game-changer.
The Stock Market Doesn’t Care
All in all, markets perform well in election years. Besides, stocks often end up better after a President’s term. The elections won't matter as much as the economy driving the market. A four-year term won’t do much for your twenty or thirty-year investment. Remember: stocks go up regardless if Republicans or Democrats rise in power. Stocks also tank regardless of the winning party. The stock market doesn’t care.
Watch this as CNBC’s After Hour reports that election day has arrived and the stock market doesn’t care who wins:
Do you agree that election results can influence the stock market performance? Do you have similar experiences where a new administration somewhat influenced your portfolio’s performance? Let us know what you think or what happened by leaving your comments below.
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