In this episode of Friends Talk Financial Planning, Bridget and I discuss the impact of presidential politics on the stock market. We delve into the three best and three worst presidencies in terms of stock returns and explore the surprising party affiliations behind them. Using historical data and charts, we uncover some interesting trends and draw conclusions about the influence of presidents on the stock market. We debunk common assumptions and shed light on the complex relationship between politics and investing.
Bridget: We've got an election coming up and people are curious about which party leads to better stock returns. We've got some information and we're going to talk about the three best presidents and the three worst presidents and how much party affiliation really impacts the stock market. You.
Hi. I'm Bridget Sullivan Mermel, and I've got a fee-only financial planning practice in Chicago, Illinois.
John: And I'm John Scherer. I've got a fee-only financial planning practice in Middleton, Wisconsin. Before we dig into presidential politics and its effect on the stock market, I want to remind everybody to hit that subscribe button. It helps other people find this information on YouTube. And with that, I'm interested to hear the information. You've been doing a lot of homework on this, Bridget. Tell me who to vote for, so that the stock market goes way up and everybody's happy.
Bridget: Well, I can tell you who to vote for, but let’s stick to the topic. The worst president for the stock market and I think people could probably figure it out, was Herbert Hoover. Right at the beginning of the Great Depression, he was at -30.8%. Yikes!
John: And when we say worst, we're talking about how poorly the stock market did while that person was in office.
John: That's what it is. And 30%, is that 30% per year?
Bridget: Yes! Ouch! We'll talk about that. So the guy before him was one of the top obviously and the next one after was FDR, and he was actually better than you would think because we often associate him with the Great Depression.
John: Yeah, right.
Bridget: It was going up for him because it went down so far during the Hoover administration. Okay next worst, which I don't think people would really expect, but I'm going to give him some slack, because remember Hoover was -30%, is George W. Bush.
John: Oh, yeah.
Bridget: A Republican with -5.6.
Bridget: He was hurt because the stock market took a big dive right before he got in. You might remember the fiscal crisis right at the end of his administration. So that hurt him.
John: And right after he got in if I remember that right. He was president from 2000 to 2008, so the tech bubble was just starting to tip over when he took over.
Bridget: Yeah, so that gets to one of our conclusions. It's going to be that there are other forces going on here that presidents have no control over. Okay the third worst I'm going to skip over, but I'll mention him, is Grover Cleveland, and then the other one coming in at -3.9 is Nixon. He had a lot of inflation problems, similar to now but a lot worse. And they were trying a lot of different things, and he just had a lot of problems, so he probably wasn't focusing on the economy as much. But again, I don't even know if that matters. All right.
John: What about all our Grover Cleveland fans? You skipped right over him.
Bridget: I don't know much about him; I have got to admit. I'm actually into history, and I don't know much about him, so if somebody's got comments about Grover Cleveland, please let us know in the comments.
John: I want to hear about that. Sorry to throw us off track here. Let's get back.
Bridget: Just so you know, we've got two sources. One is a DFA study that kind of gives you a timeline and goes through each person, but it doesn't go back to Grover Cleveland. It starts with Calvin Coolidge. And then we also have Kiplinger's survey, which looks at it by year. All right. So then let's go with the best. First, Calvin Coolidge right before the Great Depression during the Roaring 20s. Okay. And that is 26.1%.
But next, we get a modern-era guy, and it was Bill Clinton. He was at 15.2%. And then we get to Obama, 13.8%, probably helped by the fact that Bush was low. And then we get into Trump at 13.7%, like one 10th of a percent lower, and I'm sure they know the trends DFA points out is that generally, the stock market does better, and again, this is the stock market, not the whole economy, does better during Democrat administrations, which is not what people think. I don't think that's what investors think.
John: Yeah, I think that that's absolutely the opposite, probably, of what I hear people talking about as far as what the impact of a president on the stock market is.
John: And I think this is maybe a good time to pull up that DFA chart. You can visually track those presidents that we've named out here before. And the run-ups in things and the rundowns as you go back to the Great Depression over there, and then you look back in the early part of this century where George W. Bush had a pretty bad run of things, and then, of course, when Obama got into office, things went up.
And curious as you're describing those Bridget, as I think about that, we've got the things back in the Great Depression, and we got the credit crisis here earlier this century and these are very similar. The president before has a real big run-up, and then the president after has a real big downturn, and the president after has the big run-up or vice versa on that. You mentioned Clinton and Bush on the opposite ends and then Obama.
And so, as I hear these things, I think, well, is it the presidency that makes a difference? And certainly, there's some difference, but is it the cyclic nature of things? Is it when one president passes policy or influences policy, does that policy immediately impactful or does it take a while to be impactful? It's sort of like my way of thinking white noise. When it comes down to it, how do we think about who's better? To me, this is sort of the wrong question to ask or at least a question that doesn't have an answer that's meaningful.
Bridget: Yeah, and I think that for the DFA or dimensional chart, the underlying point behind it is to see how the stock market goes up over time.
John: Yeah, when you look from left to right, it goes up.
Bridget: The march of that is a bigger influence than how you exactly cut the piece of pie and that is generally the case in the stock market no matter who's in administration. We should not think that the policies of one administration or the other have everything figured out. The other thing is that I believe that if the presidents really could influence the stock market, they would.
And so, the fact that they don't seem to mean that they kind of can't, I would say. And that's one of the conclusions I've drawn. The other thing is that I think about why Democrats don't talk more about the fact that they have a better record. And there's not that much data actually and there're so many other bigger factors compared to their political affiliation in play, so I think that they don't want to try to change that notion because in the strike of one president, it could be opposite.
John: Yeah, I don't disagree with that. And you know, the president doesn't get to make the laws. So we've got Congress, we've got the House and the Senate, and some of those can be the same party as the president. They can be different parties. They can be different from each other. And so, we can’t say, “Here's the thing that drives this.” There are so many other factors that go into things, and what's going on in the economy with things.
When we had the tech run up, it made Bill Clinton's returns outstanding by any measure. Is that because of something he did? Maybe. Maybe not. Maybe it was because of the policies before or after. These things happen. We as humans want to assign reasons. It makes sense. We need to process this and go well here's the reason for this and the reason for that. In stock markets and politics like anything else, there's no reason why some people eat unhealthily and live into their nineties and other people are by all accounts healthy and they have cancer or heart attacks and die early.
You can try to connect the dots to everything, but it just doesn't always work that way. I think that the sort of tail things, the unexpected things, that affect things. And I think it applies in this case too and you go, “Boy it'd be nice to be able to connect the dots and say which one works, which is better than the other.” But I just don't think that that's how it actually is in real life, which is what you were just describing.
Bridget: Yeah. And at the end here, I want to just get into another issue that I know we agree on this topic, is that, curiously, the last time and the only time in my lifetime there's really been a balanced budget was during that Bill Clinton era. And I wouldn't actually give him the credit for it. I would give it to the election beforehand because I don't know if he innately would have done that without pressure. That's a curious fact to me. But then there was also the Internet. There was the opening of markets because of the political situation and the USSR. So those were much bigger factors than Bill Clinton's affiliation and probably even the balanced budget.
John: But that is and certainly these days it seems like neither party is very interested in what the deficit might be. Is it a connection? I don't know. It's certainly interesting to see that.
Bridget: There’s one data point which we've said that all these data points aren't really building up a clear story. One data point definitely doesn't.
Bridget: I think that's a great place to wrap it up. John. I'm Bridget Sullivan. Mermel. I've got a fee-only financial planning practice in Chicago, Illinois.
John: And I'm John Scherer. I've got a fee-only financial planning practice in Middleton, Wisconsin. And both Bridget and I are taking on new clients. We'd love to hear from people who are interested in hiring a financial planner, but we're also members of the Alliance of Comprehensive Planners, which is a nationwide group of fee-only, tax-focused planners that think similarly to us. So if you're looking for an advisor in your area, check out acplanners.org.
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