How Stocks Performed Based On Political Party Of President And Congress: 1977 Through 2019

Stock performance is affected by many factors, including politics. How did U.S. stocks perform under Democrats versus Republicans? What if one party held the presidency and the other controlled Congress? What if Congress was split? What if one party held a majority in both houses of Congress and the White House? These are the primary questions we will answer as we examine the past 43 years from Jimmy Carter to Donald Trump.

Political Control of President and Congress

Starting with Jimmy Carter in 1977, America has had seven different presidents, comprised of four Republicans and three Democrats. As the following exhibit shows, Republicans held the presidency in 23 of the past 43 years or 53% of the time. In the Senate, Republicans were in control 53% of the time and, in the House of Representatives, Democrats had control 53% of the time. Political power was evenly divided during this period.

Stock Performance by Presidential Term

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Much has been written about how stocks performed when the president was a Democrat versus a Republican. However interesting this may be, it fails to consider the impact of Congress. Nonetheless, this is where we will begin. The chart below shows the total cumulative return for each presidential term from Carter through the first three years of the Trump administration.

Stocks performed best during Clinton’s first term, Reagan’s second term, and Obama’s first term. George W. Bush presided over the worst period for stocks but, to be fair, the younger Bush took office right after the Tech Bubble burst and left just prior to the end of the worst financial crisis since the Great Depression. Thus, looking at stock performance solely by president ignores the broader picture. Let’s drill down a bit further.

Stock Performance By Political Party of President and Congress

In the next chart we find that stocks averaged 11.0% per year when a Democrat was in the White House compared to 7.8% for a Republican president. However, when you look at stock performance based on control of Congress, we find something quite different. For example, when Republicans held the majority in the Senate or the House, stocks averaged 11.9% and 11.0% respectively. This exceeded the 6.3% and 7.7% returns when Democrats had the majority. When Congressional control was split, which occurred 26% of the time, stocks performed the best, averaging 13.3% per year. When one party held the White House and the other controlled all of Congress, stocks also did well, averaging 10.1% per year.

When did stocks perform poorly? When either party held both sides of Congress and the presidency, stock performance lagged. For example, when Democrats had total control in Washington, stocks averaged only 5.6% per year compared to 5.7% when Republicans reigned supreme.

Therefore, stocks did best when 1) political control was split; 2) when Republicans held the Senate or the House; or 3) when a Democrat was president. In other words, stocks underperformed when either party had total control.

Stock Performance by President and Congress: Calendar Year

The next chart shows the percentage change in the Dow Jones Industrial Average in each year from 1977 through 2019. Under each president’s name are two color-coded, horizontal bars depicting the political party in control of the Senate (top bar) and the House (bottom bar).

During the Carter years and during George H. W. Bush’s time in office, Democrats controlled both sides of Congress. They also controlled the House until Clinton’s third year in office when Republicans took control of both sides of Congress.

As we head toward the November election, America will vote for its 46th president, 35 Senate seats, and 435 seats in the House of Representatives. With the House firmly under Democrat control and Trump trailing in the polls, if the Democrats regain control of the Senate, they will have complete control. Historically, when one party has had total control, stocks have lagged. What will happen in November? Will the Democrats win the presidency and the Senate and maintain control in the House? We’ll know soon enough.

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