In just over three weeks, Americans will cast their votes in a pivotal election that will shape the nation’s course for the next four years. While not every action taken by the new administration will directly influence financial markets, the fiscal policies set forth by the next president will significantly impact corporate America and investors alike.
During the past two presidential terms, stock market performance has been notably strong. Under Donald Trump’s leadership, the Dow Jones Industrial Average surged by 56%, the S&P 500 climbed 67%, and the Nasdaq Composite skyrocketed 138%. In contrast, President Joe Biden’s administration has seen the Dow and S&P increase by 36% and 50%, respectively, as of early October 2024.
With Biden’s term ending in a few months, an important question arises: who stands to benefit investors more—Donald Trump or Kamala Harris? Historical data sheds light on which party has historically fostered a more conducive environment for stock market growth.
Before diving into specific statistics, it’s crucial to recognize the economic landscape awaiting the next president. They will inherit one of the priciest stock markets on record, characterized by numerous measures of valuation. One of the most telling metrics is the Shiller price-to-earnings (P/E) ratio of the S&P 500, which currently exceeds 37—marking the third-highest level ever for a bull market, based on data dating back to 1871. Historical context is important: in previous instances when the Shiller P/E rose beyond 30, major indices experienced significant losses, often ranging from 20% to nearly 90%.
Further complicating the picture for the incoming administration is the prolonged yield-curve inversion—a potential signal of impending economic turbulence. Historically, a yield-curve inversion indicates that short-term bonds yield higher returns than long-term equivalents, which often suggests an approaching recession. Adding to the concern, the U.S. M2 money supply saw its first substantial year-over-year decline since the Great Depression in 2023, which has only occurred five times previously, leading to economic downturns and rising unemployment.
Thus, neither Trump nor Harris will enter office under favorable conditions. However, when assessing which candidate is better for the stock market, historical performance is revealing. Data from the last 71 years indicates that out of 13 U.S. presidents (seven from the Republican Party and six from the Democratic Party), only two Republican presidents—George W. Bush and Richard Nixon—oversaw periods of negative growth for the S&P 500. Notably, the average annual growth rate of the S&P 500 during the terms of the last seven Republican presidents has been 6.2%; in contrast, Democratic presidents have maintained a robust average annual growth rate of 9.6%.
Moreover, a deeper dive into historical averages based on party affiliation reveals more intuitive patterns. With a unified Republican Congress, the average annual return for the S&P 500 has been a remarkable 14.52%. For Democrats, the average stands at 14.01% across a longer timeframe. However, under a divided Congress with a Republican president, returns dwindle to 7.33%. On the other hand, when a Democratic president is at the helm with a divided Congress, returns have been exceptionally strong at 16.63%.
Examining data from 1926 to the present, the average annual return for the S&P 500 during the terms of Republican presidents has been 9.32%. In contrast, their Democratic counterparts have enjoyed a far more impressive average return of 14.78%. Therefore, if history serves as a reliable guide, a victory for Kamala Harris in November could be more favorable for Wall Street.
Despite historical trends, it’s vital for investors to maintain perspective. Long-term investments typically yield better results irrespective of which party occupies the White House. Economic expansions have historically outlasted recessions, making time a crucial ally for investors.
Substantial research, such as a study by Crestmont Research, has examined 20-year rolling total returns of the S&P 500 from the early 20th century onward. Intriguingly, every rolling 20-year period up to today has produced positive returns for investors, underscoring the consistent upward trajectory of the market over extended horizons.
In the face of uncertainty surrounding the election, investors who embrace a long-term perspective and remain patient are well-positioned to thrive, regardless of whether Trump or Harris assumes the presidency in November. Ultimately, the message is clear: the path to financial success lies not in the changing tides of political leadership but in a steadfast commitment to long-term investment strategies.