The stock market won’t care who wins this election

Research from the Socionomics Institute indicates no historical difference in stock market performance between Democrat and Republican presidents

Each election season, candidates and their supporters make impassioned claims about why they would be better for the stock market than their opponent would be. But research from the Socionomics Institute shows that a closer look at the market’s performance during Democrat and Republican administrations reveals essentially no difference between the two.

Other studies of stock market performance under each of the two parties tended to go back to only the 1950s or the 1920s. Institute researchers used data from the Foundation for the Study of Cycles to evaluate the history back to the founding of the modern two-party system.

“The Republican Party was formed in 1854, and it ran its first presidential candidate in 1856,” explains Matt Lampert, the Institute’s director. “The winner of that election took office in 1857. By examining stock market history from 1857 to present, we considered the results of all elections in which Democrats and Republicans have competed against each other in presidential politics.”

They found that the average annual gain in the stock market under Democrat presidents has been 7.17%, while the average has been only 6.1% under Republicans.

But Lampert says the average figures are misleading, “Whenever you compare averages, it makes sense to consider whether the disparity is due to extreme values.”

If Mark Zuckerberg walked into your family reunion, for instance, the average net worth of people at the gathering would be several billion dollars. But that average figure isn’t a good representation of the net worth of the typical person at the event.

Is something similar happening with the data on stock market performance under Democrat vs. Republican presidents? It turns out it is.

From 1929 to 1932, the stock market lost 89% of its value. No other period in U.S. history comes remotely close to such a swift, severe loss. The president during that time happened to be a Republican.

After removing those mere four years out of 164 years of history, the average annual gain in the stock market under Republican presidents jumps to 7.8%, higher than the average annual rate of return under Democrats.

“Our point is not that the stock market tends to do better under Republicans nor that it tends to do better under Democrats,” says Lampert. “Rather, the party in power is meaningless with respect to the stock market’s future trend.”

Interestingly, the researchers found that while you can’t use the person who gets elected to predict the stock market, you can use the stock market to predict who gets elected.

In a landmark paper from 2012, Institute scholars demonstrated that the three-year net change in the stock market is a better presidential re-election indicator that GDP, inflation and unemployment combined. They say that’s likely because the market better reflects social mood

Read this next

Institutional FX

Deutsche Bank goes live with its FX pricing and trade engine in Singapore

Deutsche Bank has gone live with its electronic foreign exchange pricing and trading engine in Singapore, where demand for currency trading among institutional players is on the rise.

Retail FX

CySEC extends the suspension of Depaho license until November 19

The Cyprus Securities and Exchange Commission (CySEC) has decided to extend further the suspension of the license of the Cyprus investment company Depaho Ltd, which operates the retail FX brands GTCM, FXGM and TRADEAPP.

Retail FX

CAPEX.com introduces QuantX, a tool to build automated portfolio

Multi-licensed broker CAPEX.com has rolled out a new portfolio platform, QuantX, which uses a client’s risk tolerance assessment and other criteria to create fully customized investment portfolios.

Digital Assets

Ripple scores major win: Judge orders SEC to explain…a lot

The SEC is ordered to explain, among other things, how the Howie test applies to XRP, what is the status of Ether and Bitcoin, and the sale of XRP as investment contracts.

Retail FX

Trade CFDs on 900+ of the Biggest Companies this Earnings Season with HotForex

Traders with the internationally acclaimed multi-asset broker HotForex can trade CFDs on the stocks of over 900 companies during Earnings Season with tight spreads, flexible leverage, negative balance protection and the many other advantages that have made it an honest, open and transparent broker of choice to over 2.5 million traders around the world.  

Digital Assets

Polygon (MATIC) double spend bug yields $2 million bounty for developer

Polygon, the Layer 2 solution on top of Ethereum, has recently paid out the highest ever bug bounty in history to a whitehat developer Gerhard Wagner for pointing out a double-spend bug in the network which could have resulted in huge losses if it had been exploited.

Digital Assets

KuCoin aims to become largest social trading platform in crypto

KuCoin was founded in September 2017 and it currently provides Spot trading, Margin trading, P2P fiat trading, Futures trading, Staking, and Lending to its 8 million users in 207 countries.

Digital Assets

Apifiny’s crypto trading network adds Instant Transfers for best bid and offer

Instant transfers significantly enhance Apifiny Connect, allowing traders to more efficiently buy and sell on 25 connected markets across six continents.

Retail FX

iFOREX clients can follow two experts trading in real time

Trading Rooms’ access will be free of charge for active traders who open an account with the broker.

<