Democrat & Republican Administration’s Economic Results

Democrat & Republican Administrations’ Economic Results

Source: FRED Federal Reserve Bank of St Louis

As we come closer to Election Day in the U.S., it is appropriate to evaluate which party has had the most beneficial effect on the country’s economy and consequently its capital markets. Conventional wisdom would have one believe that the Republicans being economically more conservative would have better economies, over the long term, and thus a stronger stock market than the Democrats who are more likely to spend money profligately and be detrimental for big business and thus stock market returns. Is conventional wisdom correct? We shall see!

There have been eighteen presidential terms since WWII starting with President Truman’s term from 1949 to 1953. This represents seventy-two years and Republican presidents have ruled for forty years of this period shown in purple bars; Democrats are shown in blue bars.

The darker bars in the chart above represent the average unemployment rate during the four-year presidential term and, as can be seen, there is not much difference between the two parties’ administrations. However, when one looks at the lighter bars the Democrat presidents have ruled over stronger economic growth. This fact has been reflected in stock market returns during these periods.

In fact, the three presidential terms that have experienced stock market losses over the entire period all occurred during Republican presidents’ administrations.

Source: NYU Stern School of Business

The degree to which equity markets and GDP growth have outperformed during periods of Democratic control of the White House is quite stark.

Source: NYU Stern School of Business

Unemployment has not been vastly different under either party. However, the country’s GDP has grown by 50% more under Democrats and this has been reflected in the stock market where the S&P 500 has returned 70% more under Democrats than under the more conservative Republican regimes.

Although Republicans often argue that their policies will unleash the economic potential, history would imply that it is during Democratic presidencies that the economy and financial markets have generated the best results. Two questions remain: Who should be given credit for these periods of success? Secondly, can it be repeated?

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