Ep 55: Replay: How did the Stock Market Perform Under Biden vs. Trump?

It's an election year and I was wondering what happens to the stock market from a political point of view. I know in episode two, understanding the stock market, we talked about fiscal policy having an impact. Fiscal policy being government spending decisions. Since it's an election year, I have so many questions for you Jess, like does an election year affect the stock market? Is the market better depending on what party is in office? Can we look at some historical data to understand it more perhaps?

Why, Jessica, I to call you that because you call me by my first name in last episode. don't know. You go by Jessica sometimes. I do. That's true. You're not in trouble. This year is really interesting because we have a rare circumstance as in both potential candidates. They've been in office before, which means we can look at a lot of facts in history. So today will be very interesting, but purely factual episode.

And we'll look at how the market has historically performed under each party going back to the 1900s. Look at the Dow Jones Industrial Average. We'll look at it under each president even, some of the major ones and even drill down to the sector level. I'm loving this. We're loving it. You know me. I like the facts. Yes. All right. Let's discuss. We're loving it. Was the Taylor Swift reference. Isn't that a McDonald's thing? That's I'm loving it. Yeah.

We're loving it. Who's gonna?

You're listening to Market Make Her, the self -directed investing education podcast that breaks down the complexities of the stock market teacher learner style from her perspective. That's us. We're her. I'm Jess and Skip, your fin mom, mother, with 15 years of industry experience here to teach you how investing works in the stock market. And I'm Jessi Dinwee, your fun fin auntie who knows your fin mom all too well and is here to make everything she is saying more relatable and make it make sense.

and stop her from making everything a Taylor Swift reference. Even though you said all too well and I said, I'm loving it and we're too in so far. cursed I say. All right. Let me ask the big question of the episode right up front. How does the stock market perform during election year? So let's start with volatility. Volatility refers to uncertainty and volatility tends to increase when there is increased uncertainty.

Especially if there's known uncertainties. What a fun statement. then the known uncertainty is this is an election year. So that's the known, the uncertainty is the outcome. so normally what happens, it gets remarkably seasonal as in patterns tend to repeat itself. So lows happen to occur in October.

That's something that's happened from a seasonality perspective. And that's also true during an election year. we can pull a lot of every year, right? Yeah, that's called seasonality. Normally in October, it's the lows. There's lots of reasons behind that. But during an election year, it's ultra heightened because we have an outcome around November. So there's a lot of volatility until the uncertainty is removed. There's actually a rally, regardless of the outcome, normally into the end of the year, which also coincides with the

a Santa Claus rally. So all that seasonality aspects comes in with volatility, increased volatility, increased uncertainty. have known uncertainties, known unknowns. So there's a lot of uncertainty, but then there's also seasonality, which is kind of a certainty. Like we know typically every year there's a drop in October, whether it's election year or not. And then we know that normally every

no matter if it's an election year or not, that there is like a boost in December due to the Santa Claus rally. we've talked about those things last year even. So we know that those things have potential to happen again. And that has nothing to do with the fact that this is an election year in the US. And lot of other countries. And normally after the election, it finishes on average with an increase of 6

A past performance is not indicative of future results. LOL, I always laugh when I say that that's if you work at a brokerage firm joke, because you have to say that anytime you show a historical chart. so that was like drilled in my head now. Yeah. But we would say it like it's a little finance jokes you say between each other as in like, well, that's what happened before. And you'd like, well, past performance is an indicative of future results.

You know what I mean? If you're dating a man in finance, say that joke, they'll laugh. But it's usually really good during election years and it's regardless, honestly, of Republican or Democrat. And so we can look at a lot of history to understand what happens. There's this conventional or what we will call a Smith busting, but a lot of times people will say, Republicans are better for the stock market in the short run.

because they're gonna favor big corporations and have tax cuts, whereas democratic might be for the longer run depending on like spending initiatives, but it all comes down to the stock market goes up based off of economic growth because that means consumers are healthy and consumers are spending money and that leads to earnings growth. Not necessarily presidential outcome. We can look into some details and understanding it

to see what happens. I think it's really interesting to look at all, all of the stats. So it's good to not speculate. Yes. But rather to educate. That's right. We're not here to fin fluence, but make you fin fluent. That's right. Yeah. If we look at the Dow Jones industrial average, now normally we'd look at the S and P 500.

But the Dow Jones Industrial Average was the first indices. And if we want to go back in time, we need to use the oldest. All the way back to 1900? That's right. We're going to go to the 1900s. The 1900s. Go back in time. The century in which we were both born. Yes. We're both from the 1900s. Let's start there. Yes. Anyways. The median return or percentage change.

is 7 .7 % annualized. Meaning? Going back from every president back to the 1900s. going from back every presidential election year since the 19, or like since 1900, we can see that there's what you're saying is 7 .7 % Of annualized return, that's right. Okay. That's the median. So we want to look at the median, that way we take out really large economic events. Okay. Right?

because sometimes you inherit that. So when we're looking at data sets, medians really important, the one that's in the middle. If you know the math, you take the one in middle. Yep. Yep. Nonetheless. So there isn't really a lot of dispersion. Republicans, the median is 7 .9 and the median for Democrats is 7 .7. Very, very close. Very, very close. Well, we could say that sure. It is a little bit higher under Republicans, but marginally marginally now.

What's very interesting is it matters more about management. And I think this is important to know when you're bringing it back to almost a stock market analogy or what I know better, because I'm not a politician, but I do study the stock market. And the stock market, you could have a really, really, really good product. But if you don't have good management, good free cashflow, good marketing, even it depends on who you're working with that makes a huge difference on the success of that company.

And the same is true, at least from a data perspective, when looking at the stock market through a political lens. So if you look at the Dow Jones Industrial performance during sessions of Congress from 1901 to present, regardless of a president being democratic or Republican, the stock market does better if they own all of the Senate and the House. like they have control of both the House and the Senate.

Mm -hmm. Mm -hmm. And that makes sense because more can get done and more can get done than therefore it will bolster companies. Right. What other side of the equation it is. Well, but wait, how many times do we know how many times that Republicans and Democrats have controlled both houses since 1901? Yes. So all Republican across the board from the Senate and the House has been 14 and then Democratic 21. Okay.

There's been other times where they've controlled both. So there's been 11 instances where there's been a Republican president, but Democratic Senate and House. Right. And then there's been six times where there's been a Democratic president and then Republican Senate and House. And we're saying those instances in which the president's party is also in control of the Senate and House does what? That's when the stock market does better. okay.

right. Because then the president can get more of the things they want done or whatever. Yeah. Whatever they said they're going to do or whatever they wanted to do. they have support. sense, which is really interesting. And that's another factual one to think through. If there's gridlock, sometimes we say gridlock could be really good for the stock market because it doesn't move as much. And gridlock meaning that it's opposite, right? Like the, if it's

president of one party and they don't have control of the house and senate. Right. Like their party does not have control of the house and senate. Okay. Which is still, it does well in all scenarios. wait, the stock market does well in all scenarios. It does well in all scenarios. Because it's gone up consistently 7 .7 % each election year. But it does better when there is more control. So when Republicans are the president, senate and house,

There are 14 occurrences. The Dow Jones was up about 18%. So annualized return of 7 .94%. Right. If you're going to annualize it. So we should look at that on an annualized for the Democrats. 7 .4%. Right. Okay. So basically puts you on average still. Yeah. So, basically the answer to the question is election year doesn't matter. End of episode. That's it. We're done. Basically. But I mean that that's

That's what's being uncovered right now. It is earnings and growth potential. There's a lot more to go through. Then what else should we be looking at in terms of the historical data for electioneers and the stock market? Yeah. So it's not necessarily an election outcome that's going to determine rally or fall. It's policy direction. Right. We've got policy.

Is one party going to control both the white house and Congress? And right now where we are, current polls say that we're really far from that scenario, but campaigns tend to intensify by the end of summer, which we're near, but like debates are coming up. So we should get more insight into platforms, but both are probably going to look to spur economic activity and spurring of economic activity is going to translate to positive growth.

that could give us an insight to maybe specific sectors. So we just looked at in general elections. Since we have this special time where it is a rare circumstance, Biden is currently president and Trump has been president before. So therefore we can look at what happened to the markets while they're in office. Yeah. Okay. Which I think would be very interesting. Yes. Yes. So. at all of the facts. Exactly. Now during

former president Donald Trump's tenure, the S and P was up by 69 .59%. Let's call it 70%. Okay. Now a lot of that was corporate tax cuts that helped revenues instantly. And if that happens, the markets forward looking, that's boom. There was a lot of deregulation, but there was the COVID -19 pandemic. There was

a lot of market volatility, a lot of economic disruptions. And when I'm looking at his tenure, is the January 20th, 2017 when he has sworn in to when Biden took over. that's the dates that that's looking at. Under Biden, so he inherited a pandemic market, right? It's up 41 .87 % the S &P 500.

A lot of that is substantial fiscal stimulus and he's been doing some infrastructure spending, some industrials and things like that. And he's inherited though, high inflation and restrictive fed policy. And I am a big Jerome Powell fan. He didn't respond fast enough during the pandemic. And so he's trying to make up with that, with the way that he's raising interest rates now. And a lot of people don't realize that Jerome Powell was actually nominated by president Trump and retained.

under Biden. He's been under both. And they're supposed to be nonpartisan, right? They don't choose a side. The Fed is not supposed to be political. Yeah, they are a private company, right? They're not part of the government. That's that's that's right. appointed. But appointed but not exactly technically in the government. Yes. But because of the Federal Reserve and that restrictive policy

The biggest macro headwind that at least I see within the market and something we're paying attention to and we haven't in a very long time is the bond market because interest rates are now higher or at levels where they were since before the great financial crisis. And my theory is we've recovered from the great financial crisis. It's really where we are. Took a decade. The treasury market is the way that we fund fiscal debts, right? So if you have corporate tax cuts, you're going to take down the revenue.

that the government's going to bring in that adds to our debt period because we have lower revenue. If you increase spending, you're going to increase your expenses. So you may not cut corporate taxes, but do you see what I mean? Both have an impact on the profit margin that is the U .S. government. Regardless of what you do, we have a huge fiscal burden of substantial interest payments from our very large increasing deficit.

So I think it's interesting to look at what happened to deficits under each president. And when we're talking about deficit, we're just talking about basically the added debt that we have in America. That's right. is why we issue bonds and treasuries to try to help pay that debt or fund the debt. We fund the debt. And like that's the money theory. Stimulus isn't your $600 checks. I know people say, well, the $600 I checked it and stimulate the economy. It's not that it's the

loans that companies got or the incentives, the really big dollars that's still almost out of the system is still coming in. That's the money effect, meaning money goes somewhere. So if there is money via stimulus that you suddenly get, you're going to put that in your bank account. you put that in your bank account, you'll spend it. That's going to go to a company that company is going to put it into a bank account. And

that person who received it might spend it. you see what I mean? And then the company and then the bank is going to lend it out and it's going to deposit and that's how money's created. Right. That makes sense. That's the money snowball effect. So that's what stimulus does. No, it's bigger. It's compounding when it's larger and bigger. It's bigger than just the money that we're getting. Exactly. It's like where the money keeps going. Yes. So when people say, sorry, $600 check or $1200

whatever it is. didn't do anything. Well, it actually did. it doesn't matter what you did with it, whether you kept it in your bank or gave it to someone else and they put it in their bank. It's the money effect. Yeah. The stimulus was to companies too and corporations, not just individuals. And those were large. Right. That's what that means. So there was stimulus. So it's going to be interesting to see the way that the debt structure works and the budgets.

It's not like you term for term. It's like, I'm sworn into office. Now I am changing the budget all around. That's no, you're going to inherit it and you might have a new one and it's not like apples to apples. So the way that we look at it from a stock market perspective as, a percentage of GDP. So let's define GDP once more for the audience gross domestic product.

It's the way that we measure growth within the economy. You want to see increasing GDP. It's the monetary value of final goods and services that are bought by the final user. Bought by the who? Final user. That's us. a country's border. So the total monetary or market value of all the finished goods and services produced within a country's border. And why are we looking at that number again? That means the economy is growing. We look at GDP to look for. economy. Yes, the US economy is growing because we're producing goods and services.

So we want to see how that changes during election years. So think about the U S as a company. If your GDP, your gross domestic product is what you're producing as an economy as a whole, your debt is going to be the cost for keeping that economy going. Right. So what's your percentage of GDP? And you can actually pull this. This is public information. We can have a link to this during Trump's term, the gross federal debt.

as a percentage of GDP increased by 19 and a half percent while under Biden, actually decreased by one and a half percent. And sorry, what do we want to see happening with GDP? We want GDP to increase. Okay. We want the debt to go down. That makes sense. there could be a lot of reason. We have some really good growth right now because supply chains have ease. There's been a lot of on shoring and there's been fiscal stimulus to incentivize that. Right.

So we had a decrease of 1 .5%. Under Trump, he did have COVID, which required a lot of stimulus, but there were also a lot of expense reductions with tax cuts. So that increased from a gross federal debt as a percentage of GDP by 19 and a half percent. And we'll try to leave opinions out of it, because I obviously have opinions on all these things, but we're not going to go there. We're just going to look at straight the numbers. This is facts. This is just how it affects the stock market.

And bond market, because you did bring up the bond market and we always think about the stock market and forget about the bond market. But the bond market is also important. Yeah, because the treasuries are how we fund our debt. And if we have increasing debt, it becomes an increase of the budget. You have to finance your debt. Yeah. And that's also why we need interest rates to come down. So the question is, like, is the Fed going to get political? And that's a whole nother episode that we can analyze. But yeah.

And so like, look, let's look at unemployment. So when we're thinking about at least the economy as a whole, is it growing? Is it costing us more to grow? Did everyone have jobs under Trump? Unemployment rose from 4 .7 to 6 .4%. I will say that's primarily due to the pandemic. saw huge recovery. We're at record low unemployment, but that is also because of timing and the pandemic. I just, we'll just leave that there.

Yeah. And as we've said before, the unemployment numbers don't include tech layoffs and things like that because those people get severance packages. Yes, severance packages. take a while to show. they're not getting unemployment checks and whatever. So true. So true. But from what we measure, this is what you're seeing in this. This is the numbers that we, we as the US, how we measure things. The way it's done. We're just explaining to you how it works. Exactly. Exactly.

So now I think it's really interesting to look at the sector performance. And I was actually really surprised by this, by pulling the data. The best sectors under either was financials. Hmm. I thought that was really interesting. maybe that's, don't know, interest rate, rising interest rates can be bad for finance sector. I don't know. It's really interesting. I I would expect, but the

And it's financials including like credit cards and. Yeah, that would be. So that would be under there like American Express, Visa, MasterCard, Bank of America, JP Morgan, Goldman Sachs, Citi, regional banks. All of those would be under the financial sector. That did better under former president Trump up 179%. But it still did well up 78%. I mean, that's really high under Biden. But what's interesting is energy did better.

under Biden up 134%. Whereas under Trump, it was actually down 29%. And that also goes to what happens though. You've got to think of geopolitical tension causing oil prices to spike and supply chain disruptions. That's subsiding. That all has this big impact. Look at the sectors going all the way back if you wanted to also and see if there's any trends

sectors that improve or not during certain types of political parties. It would just be interesting to see. They believe in different things, they stand for different things, they have different ideas of how things should be done. And that obviously affects different sectors differently. Yeah. Well, that's, and that's the important factor. The stock market is not the economy. Right. There are a lot of forces that benefit from the stock market going up. It does not matter if you are left

or right if you don't believe in capitalism or you do. If you have a job, that's going to help stock market. If you have a 401k, that's going to help grow your retirement. If the stock market's going up, companies are recognizing revenue, so companies like it. Do you see what I mean? It doesn't matter where you are. That is good and healthy, but the stock market is not the economy. It's just a bunch of companies.

highly concentrated technology right now. We're just looking at company performance. That's what we're doing. I think people are maybe over complicated. Nonetheless, fiscal policy does have implications and that could be on the sector level and you can even drill down on individual securities. So if reshoring is a thing or the tax cuts and jobs acts of 2017 that Trump implemented, that's going to expire in 2025.

it's possible that he might extend those cuts. And if they do, that might exasperate federal budget deficits, but that could help corporations in the short run. So in the short run, I would expect to rally in the stock market. However, if that wasn't extended, that could have other issues as in it wouldn't be good for corporations, but then that would also help the deficits because there'd be more revenue coming in because corporate tax rates are going to go from 21 % to 35%. Basically what you're saying.

is a lot of factors go into what could happen under either president, whoever wins this year. But historically, it doesn't change the stock market by much more than a 7 % increase. it still stays within the mean of the market. Right. And I mean, it makes sense because the mean of the market is going to be no matter who's there. I think there's this interesting stat.

that really, really drives it home. If someone wants to have this argument of what side is better for the stock market. If you were to look at the stock market since 1953, since Eisenhower was inaugurated and you invested $1 ,000 only when a Republican was president, removed it when a Democrat was, or vice versa, only when a Democrat was president, or if you kept

invested all the way and there is a huge difference. If you only invested it when a Republican was president, you'd have $27 ,400. This is $1 ,000. So just $1 ,000. Okay. If you only invested it when a Democrat is president, you would have a little bit more, $61 ,800. However, if you just remained invested, you'd have $1 ,690 ,000. we always say just stay consistent.

Do. Take like figure out how much you can invest every month and just have it automatically come out of your paycheck or whatever and put it in the things that you feel makes the most sense for you. That's right. Get that compound interest. This is most important over and like you know time in the market. No matter who is in charge or who's president you just need time in the market. That's all. That's it. And volatility is expected.

because it's uncertainty. So people just get scared and get emotional. Yeah. Everything else is just, yeah, fear -mongering. We're seeing in terms of investing, it doesn't really change things that much. make whatever conclusions you want to make from that. That's what the data is. And until something like really big changes, then it's probably not really going to affect your portfolio that much. You just want to keep doing what you're doing. And I think that's a good takeaway. The stock market.

doesn't care who's president. The stock market cares if companies are making money. That's the whole job of a company is to make money. That's like what companies do. And fiscal policy is one component. There's also monetary policy. There is, which then has an effect on treasuries. This is another puzzle piece. And hopefully it all makes sense if you've been listening to this podcast from start to finish.

This is one of those where we're bringing literally episode two, like you referenced in the beginning into something you might be thinking about. And you're like, that makes sense. Because when I first started this, I realized that the stock markets around me and it's a bunch of companies and that there are fiscal implications and this is a fiscal policy change. Maybe what does that look like? But either way, whoever, wherever you lean on left or right, normally they're looking for a growing economy. So TLDR, what happens to the stock market during election years?

Nothing changes. Stay invested. Yeah. And there you have it. So no matter how you identify politically, the data says staying invested is key. You shouldn't time the market. And that means politically as well. I'm going to go ahead and say it, Jess. Then it's just white noise. And it's my choice. It's from daddy. I love him. It's a Taylor Swift lyric. If you couldn't tell. Three. Three today. How did I make that? today.

because there wasn't any in the last two. That's like an up, that's a, upcoming birthday present for me. One of your birthday presents. But remember the stock market, it is a bunch of companies and we need to understand what impacts those companies. That's what we think about. That's how we identify headwinds and investing opportunities. But ultimately growth is what we're looking for in consumer health. You know the drill. If you found this helpful, share this episode with someone you want to talk politics in the stock market with. Sounds like a great old time.

share the stats. Yeah. And if like one of your parents or the elders in your family or someone's trying to convince you that it's different under one party or the other, you can share this episode with them and be like, no, it's not. This day, this is not really says, did you know? Historically, no. Right. yeah. So add that to your hinge profile prompt that will provide some insight and leave us a review. Tell us how you really feel.

Yeah, I think it would be great because I would give you insight on a hinge profile prompt because you would understand where they fall because I would want to know that and then also how they think. I think that's a good prompt. Nonetheless, do leave us a review. We show up for you. It's the best way you can show up for us and if you've already written us a review, thank you so much for it. Literally makes our day. Give us some stars. And remember, when you build knowledge, you break barriers.

Remember, investing involves risk. There is always potential to lose money when investing in securities. Market MakeHer provides educational content and resources for informational purposes only. We are not registered financial advisors and do not provide personalized investment advice. Any information provided by Market Maker on our website or podcast is not intended to be a substitute for professional financial advice.

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