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

In politics, a four- or eight-year presidential term may seem like a long time. For the stock market, 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.

A lot has been said about — and by — President Donald Trump and his effect on the stock market. Google “Trump Bump,” and you’ll get millions of results, and the president in March signed charts showing big one-day gains on major U.S. stock market indexes after he declared a national emergency over the coronavirus pandemic. These benchmarks fell into bear markets, defined as declines of at least 20% from recent highs, for the first time in more than a decade this year.

The stock market performed remarkably well in the first year of Trump’s presidency but has recently cooled. 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 and is down more than 13% so far in 2020.

So far into Trump's term, the S&P 500 is currently up more than 23%. But after 39 months in the White House, the stock market under Trump's presidency lags behind four of the last five predecessors, with the exception being George W. Bush, according to Macrotrends data.

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. Through mid-April, Trump's monthly average gains — currently nearly 0.6% — would put him 11th on that list. 

How buying stocks has changed over the centuries

Video by David Fang

Do politics affect 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.

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. With another presidential election happening this year, experts say you can expect more market turbulence in the months leading up to November.

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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