Does presidential politics matter in equity returns?

President Trump made much of the stock market’s success in his first year in office. Was he accurate in his assessment that this was a spectacular year, and as a Republican President will he follow in his predecessors’ success and will that outperform the Democrat Presidents?

Unfortunately for President Trump his record, if he follows in the footsteps of previous Republican Presidents, will likely underperform that of his arch rival President Barack Obama. Republican Presidents have averaged 8.51% per annum versus 13.90% for the Democrats. In his first year in office the market returned a stellar 21.64% however that was below Obama’s 25.94% coming off a major loss in 2008. It was also below that of Presidents Truman and Kennedy in their respective first years.

Source data: NYU Stern School of Business

As can be seen from the above chart the Democrat terms in office have generally outperformed their Republican counterparts and only one President presided over a losing term, that being President George W. Bush from 2001 to 2008. Only President Obama never had a losing year President Clinton had five consecutive years of over 25% returns. The best year of all was President Eisenhower’s second year in office when the market returned 52.56%. If the future echoes the past we can assume that the next three or seven years, depending on the 2020 Presidential election, may be tougher sledding in the equity markets, than we have had over the past eight years.