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How much impact a president can really have on the stock market

How much influence does the president have on stock market performance? Not much.

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In politics, a four- or eight-year presidential term may seem like a long time. For Wall Street, that's barely any time at all.

And while the politics of any particular president can vary widely, the stock market has generally gone up. Since 1928, only four politicians have seen the S&P 500 end up lower on their watch: Herbert Hoover, Richard Nixon, Jimmy Carter, and George W. Bush, according to data collected by Macrotrends. Many American investors watched the results of the 2020 presidential election anxiously, but the fact of the matter is that most likely, the economy under president-elect Joe Biden's term is unlikely to differ drastically than if Trump had been re-elected.

The stock market performed remarkably well in the first year of President Donald Trump’s presidency but subsequently fluctuated. The S&P 500 gained nearly 18% in 2017 after Trump took office, then fell 6.2% in 2018. It surged almost 29% in 2019. With 2020's ups and downs, the market, too, had its ups and downs, dropping in the first few months of the Covid pandemic before rebounding. By the end of November 2020, the market was up over 14% from January 1, 2020.

Here's what you need to know about a president's impact on the stock market.

A closer look at presidents and the market

Since 1900, we’ve had 20 U.S. presidents, including Trump. The three who saw the worst stock market performances during their tenures were all Republicans, according to figures compiled by Bankrate:

  • During Richard Nixon's presidency, the S&P 500 fell an average of 0.3% per month.
  • When George W. Bush was president, this benchmark was down nearly 0.4% per month, on average.
  • During Herbert Hoover's term, the S&P 500 experienced a whopping 2.2% monthly drop.

On the other hand, two of the three presidents in office during the top-performing markets were Democrats. Republican Calvin Coolidge tops the list, posting a 1.7% average monthly gain, followed by Democrats Bill Clinton and Barack Obama, with average monthly gains of 1.2% and 1%, respectively.

VIDEO3:2603:26
How buying stocks has changed over the centuries

Video by David Fang

Do politics affect market data and stock prices?

The current resident of 1600 Pennsylvania Avenue matters less than you might think. The stock market typically goes up during each party's tenure because presidents have time on their side. While stock prices may fluctuate in the near term, historically they tend to go up each year. In the past 90-plus years, the S&P 500 has delivered average annual returns of about 10%.

Both the political landscape and financial market are messy places, driven as much by chance as they are governed by regulations. And though they undeniably influence one another, they are also designed to operate independently.

Our government, of course, can make certain changes — with trade policies or tax codes, for example — that alter business operations and, in turn, influence the stock market. But the impact of any particular proposal or policy change is difficult to measure, and credit or blame is hard to assign, since the effects of policies put into place under one administration can take years to emerge.

What's more, timing matters a lot to the market's success during a presidential term. With respect to those four presidents who saw the market fall under their watch, the U.S. was in the midst of an economic recession when each of these men left office.

And in 2020, the pandemic had far more influence on the stock market and the economy than the president or indeed any other factor.

Finally, remember that public policies are established by gaggles of people in a (sometimes forced) team effort. So no president or any one person can shoulder all the responsibility or glory that may result from them. That is the hallmark of our systems of democracy.

Or are you saying it doesn’t matter who’s in the White House?

The president sets the tone of the country in many ways. Sentiment can push stocks up and down as much as corporate earnings and other fundamentals — for better or worse.

Still, no sitting president has changed the long-term trajectory of stocks, which, so far, has been up. Back to the numbers: Of those four presidents that presided over periods of loss for the stock market, the S&P 500's declines ranged from down 0.7% for Carter to more than 82% down for Hoover, the Macrotrends figures show.

Otherwise, stocks have risen enormously. And of the six best presidents for the S&P 500 since the 1930s, it's been an equal split between Republicans and Democrats. Coolidge, a Republican, saw the S&P 500's biggest surge, at more than 230%. Presidents Obama, Clinton, Ronald Reagan, Dwight Eisenhower, and Franklin Roosevelt all presided over periods when the S&P 500 rose at least 120%.

What can I take from all this?

Whether the market ends higher or lower on a particular president's watch may have less to do with his or her politics than what's happening in the broader economy.

Rather than making major changes to your portfolio based on your political preferences, make sure your portfolio is well diversified. In addition to a mix of stocks in various industries, investing in bonds can help balance out your risk.

Finally, as an investor, you’d be wise to remember the market’s long, positive history of gains and continue to look forward to your own long-term goals. As long as you stick with your carefully planned strategy, you are highly likely to achieve your goals — no matter who is president.

This story is an updated version of a piece that Grow contributor Stacy Rapacon originally wrote in 2018.

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