Democrats vs. Republicans - Who is the real winner?
Should we invest in Democrats or Republicans?
This is a question I’ve received several times over the last few months as we approach the election. Many have pointed to the economic boom under the Reagan era as others point to Clinton for a time of economic success. The real question is, why settle for either one?
Let’s look at the Dow Jones Industrial Average (Dow) as the proxy for U.S. stocks because of its longer history than the S&P 500, which wasn’t created until the late-1920s. Likely highlighted more by Democrats than Republicans is the fact that, since 1900, the stock market has performed better when Democrats sit in the White House than when its inhabitant was a Republican.
As you can see in the first two bars in the chart below, if an investor had invested $10,000 starting in 1900, but only had it in the Dow when Republicans were president, it would now be worth nearly $99k. On the other hand, that same $10,000 would have grown to nearly $430k if it was invested only when Democrats were president. However that same $10,000 in 1900 would have grown to more than $4.2 million if the investor had remained in the market the entire time, regardless of which party has presidential power.
Source: Charles Schwab Bloomberg, as of 10/2/2020. For illustrative purposes only. The above chart shows what a hypothetical portfolio value would be if a hypothetical investor invested $10,000 in a portfolio that tracks the Dow Jones Industrial Average on 1/1/1900 under three different scenarios: a Republican presidential administration; a Democratic presidential administration; or staying invested in the market throughout the entire period noted. Chart does not reflect effects of fees, expenses or taxes.
But what about congress?
The table below shows the history of party control over the presidency and Congress—covering all six possible outcomes. For what it’s worth, the best performance historically has come when there was a Democrat in the White House and a split in Congress. However this has only been the case once (or 3.4% of the time since 1900) solely under the four years when President Obama was in the White House and Congress was divided, between January 2011 and January 2015.
In terms of the two most common combinations—full Democratic control (33.4% of the time) and full Republican control (23.5% of the time)—there were nearly identical annualized returns at 7.2% and 7.3% respectively.
Chart depicts the Dow Jones Industrial Performance with comparisons being made between Democratic and Republican Presidents in combination with comgress
Source: Charles Schwab As of 3/4/1901-10/2/2020. Past performance is no guarantee or indications of future results.
Conclusion: Cut through the noise and invest with data not politics.
Hardy Capital Investments, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.