How Does the Market Perform Under Democratic or GOP Rule?

The relationship between elections and stock returns has always been problematic. Is there a cause and an effect? No amount of polling can nail down an answer. But whether it’s coincidental or not, who wins in Washington seems to have a resonance with market performance.

To be sure, former President Donald Trump, the Republican nominee, stands for higher tariffs, tax cuts, immigration crackdowns and skepticism toward international alliances, in particular NATO. President Joe Biden, thus far the apparent Democrat standard-bearer, has different takes on those topics, often the direct opposite.

These are “all big issues on which both parties disagree and that can affect the economy and financial markets,” wrote Jeff Buchbinder, chief equity analyst at LPL Financial, in a research paper on politics and the market in this election year.

The S&P 500 under Trump was outpacing its performance under Biden for the first three years of each president’s term, a Yahoo Finance analysis found. But then the pandemic hit at the beginning of Trump’s last year in office, depressing the market. Thus, for each man, through March of their fourth years, the index was up 138% for Biden and 109% for Trump.

For more stories like this, sign up for the CIO Alert newsletter. 

One finding of the LPL study: If you invested $100,000 in the S&P 500 back in 1950, yet stayed invested solely during Democratic presidential years, you would have seen that grow to $3.1 million today (not counting dividends). During GOP administrations, that figure would just be $1.0 million. Staying invested for the entire 74-year span would bring you $32.6 million.

One could chalk those huge differences up to “the adage of time in the market beats timing the market,” Buchbinder observed.

Another factor is that, for whatever reason, since World War II, the average Democratic four-year presidential term has had a recession in just one of its 16 quarters, versus five quarters for the average Republican term, according to a study released in March by the Harvard Kennedy School of Government.

What about split government: a Democrat in the White House with Republicans controlling both houses of Congress, and vice versa? The average annual return on the S&P 500 was 6.7% and 4.9%, respectively, the report found. Only a small difference. The paper did not sketch out the outcomes when just one house was under control of the president’s party.

Of course, an argument exists that split government is good for stocks. Per a study by financial planning firm Van Leeuwen and Co., since 1948, the Dow Jones Industrial Average returned a yearly 8.3% when one party controlled both ends of Pennsylvania Avenue and 12.9% with split government.

In mid-July, after Trump’s escape from an assassination attempt and as the Republican National Convention gets under way, the ex-president is ahead in the polls: Real Clear Politics, which amalgamates election surveys, has Trump leading Biden by 2.7 percentage points, wider than the 0.9-point Trump edge a month ago.

That said, what the polls say in summer has a way of turning out quite different in early November. So no one can be sure—of the outcome or of its effect on the market.

Geopolitics Operates with Long and Variable Lags

Tags: Congress, Democrat, Donald Trump, elections, Harvard Kennedy School, Jeff Buchbinder, Joe Biden, LPL Financial, polling, president, Republican, S&P 500, split government

The investment portfolio of the Church Pension Group, the pension fund for the Episcopal Church, grew to $17.5 billion during the fiscal year that ended March 31, up from $17 billion one year earlier. The fund also reported that its investment portfolio has generated an annualized return of 7.6% over the past 10 years, exceeding its investment goal of 7.3% and its benchmark’s return of 6.3% over the same period.

“In 2023, CPG exceeded all benchmarks and targets for customer service, investment performance, and financial management—its key performance indicators,” the pension fund’s board of trustees wrote in its annual report. “The organization also recruited an extremely talented new chief investment officer and filled two key management-level roles in Church Relations and Client Engagement.”

Michael Hood joined the CPG as CIO in July 2023.

The pension fund board attributed the $500 million increase in asset value to publicly traded stocks, which, according to a statement, “delivered strong increases over the past year.” It also noted that although bond markets had a roller coaster year, they provided the portfolio with “modest gains.” The fund’s private asset investments, such as real estate and private equity, continue to adapt to increased interest rates and registered “muted returns amid subdued market activity,” according to the board.

For more stories like this, sign up for the CIO Alert newsletter. 

As of the end of March, the asset allocation of the pension fund’s investment portfolio was 28.1% in fixed income, 21.4% in private equity, 17.4% in global equities, 13.2% in hedge funds, 9.9% in real estate, 5.7% in absolute return, 3.8% in private specialty strategies and 0.4% in cash. On a regional basis, the portfolio’s asset allocation is 70.5% invested in North America, 11.7% in Asia, 11.6% in Europe, 2.2% in the Middle East and Africa, 1.7% in Latin America and 2.3% in “other” geographies.

The CPG board also noted that its investment team is including socially responsible investment principles in its broader investment strategy with a “four-pronged investment strategy,” which includes evaluating how current and prospective investment managers reflect environmental, social and governance issues in their analysis; investing for positive social impact while producing “strong risk-adjusted returns” and engaging with companies on ESG issues; and “sharing access to the expertise of thought leaders in SRI.”

According to the board, it continued to work on diversity, equity and inclusion in 2023, adding that “an intentional focus on DEI is vital to the CPF Board’s effectiveness because our ability to make good decisions depends on our willingness to hear each other’s perspectives.”