The Direction of the Market—Debunking Popular Beliefs

Sheaff Brock reviews, Democrat control of Congress, impact on stock market

The Direction of the Market—Debunking Popular Beliefs

It might seem the stuff of a Ripley’s Believe It or Not episode, but, over the past more than 70 years, both the stock market and the economy performed better under Democratic presidents than under Republican leadership. The score for the S&P 500? As Markets Insider chronicles, 10.8% to 5.6% in favor of Democrats. 

Oh, well, you might counter. The Great Recession and COVID-19, both of which occurred under Republican presidents, skewed the average downward for the Red team. Sorry, but even excluding the results from both those disastrous periods of time, pausing the scorekeeping in 2006, the data still favor the Democratic side. In any event, you can stop stressing, because the data doesn’t matter much anyway, Mackenzie Sigalos chuckles in a pre-election piece for CNBC: “Elections have seldom had a lasting impact on equity prices.

What has had some impact on stocks is the combination of party control in the House and Senate, data compiled by LPL Financial shows. Stocks appear to perform best when a Democrat is in the White House and Congress is split in favor of Republicans.

Sheaff Brock, Democrat Control, Economy, Stock Market, S&P 500

What about those recessions? “Party control of the White house since 1950 has shown vastly more recessions for Republicans (10 versus one),” Larry Light of Chief Investment Officer reminds investors.

“Blue waves have not been bearish for stocks,” LPL Financial Research shows. Far from it—the S&P 500 moved higher during six of the seven times Dems were in power since 1950.

Sheaff Brock, chart showing history of Democratic Control of Congress and the Markets

It’s no myth that, historically, stocks do better if an incumbent president wins versus a new president in office, LPL Financial’s market strategist Ryan Detrick concedes. Still, in the nine times (since 1900) new Democratic presidents have brought with them both the House and Senate, stocks were up an average of nearly 12%.

Remember, politics, the economy, and the stock market are cousins, not brothers, Sheaff Brock Managing Partner Dave Gilreath says. Any data we have on the economy, by definition, refers to the past, while the stock market is a forward-looking mechanism. Meanwhile, the bulk of the government budget is already committed (think Social Security and Medicare), leaving no room for earthshaking, sudden changes. For all those reasons, Gilreath concludes, “You can’t let politics influence investment decisions.”


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