History of Financial Market Returns Under Democrats and Republicans

September 1, 2016

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With the United States presidential election just months away, financial market participants are still deciding who to back. While not everyone is pleased with the choice of Hillary Clinton or Donald Trump, history clearly demonstrates that Democrats are better for stock markets than Republicans. While this is a far too simplistic way of deciding which party is better for the economy and finances, the difference in stock market returns between Democrats and Republicans is too big to ignore.

Democrat vs. Republican: A Look at the Numbers

Since 1900, the average annualized return for the Dow Jones Industrial Average under a Democratic president is 7%, more than double the Republican average of 3%. The Dow also has a much higher percentage change under Democrats than Republicans. The average change in the Dow under Democrats is 82.7% compared to just 44.8% for Republicans.

The US stock market has surged under the lasts two Democratic presidents. Barrack Obama’s presidential tenure has seen average annualized returns of 14.5%. Bill Clinton, who served as president for two terms between 1993 and 2001, oversaw an average annualized return of 15.9% for the Dow Jones. The administration of George W. Bush saw the worst annualized returns for US stocks since Herbert Hoover’s reign in the 1930s. We should note that Mr. Hoover was also a Republican.[1]

It’s important to mention that all presidents spend a great deal of their time dealing with decisions made by previous administrations. For example, George W. Bush was elected during the height of the dot-com peak that, along with the September 11, 2011 terrorist attacks, caused the stock market to lose $5 trillion in market value.[2] It can certainly be argued that the mess that Bush inherited was stoked by the Clinton administration, which facilitated a massive economic boom during the 1990s that eventually proved richer than the market can justify.

In 2009 the Obama administration also inherited a financial catastrophe in the form of the subprime mortgage crisis, which precipitated the biggest recession since the Great Depression. The fallout of the housing bubble has been dubbed the Great Recession. If the Clinton administration is to be implicated in the dot-com bust, then Bush and Co could be equally blamed for the events that led up to the Great Recession.

The recovery under Obama’s watch has been impressive – at least on paper. More than 14 million jobs have been created during his tenure, as the US economy made a long and gradual recovery aided by $4.5 trillion in Federal Reserve quantitative easing.[3]

“Anyone claiming that America’s economy is in decline is peddling fiction,” Obama said in January in what many have called a direct swipe at Donald Trump. “We’re in the middle of the longest streak of private-sector job creation in history. More than 14 million new jobs; the strongest two years of job growth since the 1990s; an unemployment rate cut in half.”[4]

Of course, Obama forgot to mention that workforce participation is a woeful 63%, and barely that. For those keeping track, that’s the lowest level since the 1970s.[5]

The Short-Term Outlook

While it would be easy for the Democrats to claim superiority based on some of the numbers presented above, it’s not entirely clear that the next president will be inheriting a stable economy and financial market. US stocks are trading at record highs in what many level-headed analysts are describing as a real quandary. Weak international growth, plunging commodity prices and a deepening corporate earnings recession leaves much to be desired about the current economic climate and, by extension, Obama’s presidency.

The next US president will be forced to deal with such complex topics as a weakening Chinese economy, the political and economic fallout of Brexit and painfully low oil prices. Bloody conflicts in Iraq and Syria have also opened up the flood gates of terrorism on the world, with militant attacks becoming far more commonplace than at any other time in recent history.

These and other conflicts extend far beyond the Democratic vs. Republican narrative. The rise of Donald Trump as Republican nominee certainly reflects that. Americans are simply tired of partisan politics and the leaders both parties have produced. However, it’s unclear exactly how the market will respond to a Trump presidency. The wildcard candidate doesn’t have any precedents, at least not in recent history. For this reason, it’s not surprising that many in the financial world are backing Clinton. After all, uncertainty is the bane of the financial markets, and Hillary certainly represents the machinery that the markets are used to.

[1] Myles Udland (December 20, 2015). “The stock market loves Democratic presidents more than Republicans.” Business Insider.

[2] Chris Gaither and Dawn C. Chmielewski (July 16, 2006). “Fears of Dot-Com Crash, Version 2.0.” L.A. Times.

[3] Craig Torres (January 15, 2016). “With Liftoff Done, the Fed Revisits a $4.5 Trillion Quandary.” Bloomberg.

[4] Heather Long (January 13, 2016). “Did President Obama really create 14 million jobs?” CNN Money.

[5] Robert Farley (March 11, 2015). “Declining Labor Participation Rates.” FactCheck.org.

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