Presidents and the stock market

This is common knowledge to most people in investing, but it’s worth repeating anyway: The U.S. stock market, as measured by major market indices such as the S&P 500, on the whole does substantially better under Democratic presidential administrations than Republican ones.

A chart and accompanying article from Joshua Green at Business Week (summarizing an analysis by Bob Drummond) illustrates this pretty clearly. The chart covers only from the Kennedy administration onward, but the analysis holds true if you go back farther as well.

Green notes that “$1,000 invested in a hypothetical S&P 500 tracking fund beginning when JFK was president and measured only during subsequent Democratic presidencies would have yielded $10,920 by the time the market closed yesterday [February 21]. Alternatively, $1,000 invested when Richard Nixon was president and measured only during Republican presidencies would have yielded $2,087 on the last day of George W. Bush’s presidency.”

(The S&P 500 is a total return index, reflecting both stock price changes and dividend payments.)

Since over the period in question Democrats occupied the White House for a bit over 23 years versus 28 for Republicans, the cumulative gain actually understates the difference. For an apples-to-apples comparison we should use the geometric mean annual total return, and on that basis, the return on the S&P 500 averaged more than 9.5% per year under Democratic presidents versus less than 2.7% under Republicans.

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