Three on Thursday First Trust Economics
Brian S. Wesbury - Chief Economist
June 6, 2024
The election year is in full swing, bringing with it the usual drama. We all have that one family member who insists they’ll sell everything and go to cash if a certain candidate wins the election. The truth is, letting politics drive our investment decisions can be detrimental. That’s why we believe having a financial professional is crucial—they can help remove emotion from investment decisions. In today’s Three on Thursday, we examine past presidential cycles and their implications for investing. Every four years, the convergence of politics and finance seems more pronounced, leading many to make decisions they later regret. Amid all the drama and political uncertainty with an election right around the corner, what does this mean for the markets moving forward? We’ve provided the three charts below to offer more perspective.
Using the S&P 500 Index as a market gauge, consider this: if you only invested when a Republican was president and went to cash when a Democrat was in office, your $10,000 would have grown to just $83,360.22 by the end of Q1 2024. Conversely, if you only invested during Democratic presidencies, your $10,000 would have grown to $414,703.12. However, if you ignored political factors entirely and stayed invested throughout, your $10,000 would be worth an astonishing $3.46 million by the end of Q1 2024! This illustrates the importance of maintaining a long-term, non-partisan investment strategy.
An analysis of the makeup of the presidency and Congress since World War II reveals that the stock market has performed positively on average, regardless of the political mix. Surprisingly, the best average performance has occurred with a Democratic president and a Republican Congress, although that result might be due to the relatively small sample of years when that’s happened. Contrary to what many Democrats and Republicans might believe, full control by one party has not yielded the best returns. In fact, some of the lowest average returns come from scenarios where one party has a complete sweep: 13.9% for a Democratic sweep and 10.7% for a Republican sweep. This suggests that a balanced political landscape may be more conducive to market growth.
The reality is that the market grows over time because companies consistently innovate, create, and drive increasing profits. It’s easy to let politics cloud our judgment, but history has shown that regardless of who is President or what policies are enacted, entrepreneurs and companies find ways to adapt and thrive within or around the rules. Innovation and creativity are the true engines of market growth over time.
The S&P 500 Index is an unmanaged index of 500 companies used to measure large-cap U.S. stock market performance. Indices do not change management fees or brokerage expenses, and no such fees or expenses were deducted from the performance shown. Investors cannot invest directly in an index. This report was prepared by First Trust Advisors L. P., and reflects the current opinion of the authors. It is based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
The attached information was developed by First Trust, an independent third party. The opinions are of the listed authors at First Trust Advisors L.P, and are independent from and not necessarily those of RJFS or Raymond James. All investments are subject to risk. There is no guarantee that these statements, opinions, or forecasts provided in the attached article will prove to be correct. Individual investor's results will vary. Past performance does not guarantee future results. Forward looking data is subject to change at any time and there is no assurance that projections will be realized. Any information provided is for informational purposes only and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected.