Presidential Election 2024: The Stock Market Performs Best When This Political Party Controls the White House

The S&P 500 (^GSPC 0.41%) has advanced 24% year to date. Factors contributing to that momentum include robust economic growth, accelerating earnings growth, and excitement about artificial intelligence. But there is a major inflection point on the horizon.

Americans will head to the polls on Tuesday, Nov. 5, to select the next president, and the outcome could impact the stock market for years to come. Of course, the president does not control the stock market, nor do they control the economy. But they influence both with their budget priorities and official appointments.

So, does the S&P 500 perform better when Democrats or Republicans control the White House? Here’s what investors should know.

The S&P 500’s historical performance under Republican and Democratic presidents

The S&P 500 is widely regarded as the single best gauge for the entire U.S. stock market because it tracks the performance of 500 large companies that cover approximately 80% of domestic equities by market value

The chart below shows the compound annual growth rate (CAGR) of the S&P 500 during Republican presidencies dating back the index’s creation in 1957. Importantly, while Dwight Eisenhower held office for an eight-year period, the chart only includes his second term.

Data source: YCharts, The American Presidency Project.

As shown above, the S&P 500 has returned an average of 6.2% annually and a median of 10.2% annually during Republican presidencies.

The chart below shows the S&P 500’s CAGR during Democratic presidencies. Importantly, President Joe Biden will not leave office until January 2025, so the figures in the chart will change during the remaining months of his term.

Data source: YCharts, The American Presidency Project.

As shown above, the S&P 500 has returned an average of 9.9% annually and a median of 9.3% annually during Democratic presidencies.

So, does the stock market perform best when Republicans or Democratics control the White House? The answer is both. The S&P 500 has posted superior returns under Democratic presidents if we use the average CAGR, but it has posted superior returns under Republican presidents if we use the median CAGR. So, either political party could factually claim the stock market has done better under their watch.

In a blog earlier this year, Goldman Sachs tackled the topic of the presidential election. “Regardless of who the next president is, we uphold our view that equity prices will continue to be driven by macro fundamentals.” The analysts also provided an important historical perspective. “Investing in the S&P 500 only during Republican or Democratic presidencies would have resulted in major shortfalls versus investing in the index regardless of the political party in power.”

Indeed, consider $10,000 invested in an S&P 500 index fund in 1957. Here’s how much that sum would be worth today under three different scenarios:

• Invested only during Republican presidencies: $67,000
• Invested only during Democratic presidencies: $260,000
• Invested during both presidencies: $1.7 million

The lesson is here is straightforward: While the political party in power has influence over the economy and stock market, investment time horizon is the more important variable. It would be nonsensical to avoid stocks based on the outcome of the presidential election.

Investors should be wary of stock market recommendations tailored to specific presidents

Some analysts are already using terms like “Trump trade” and “Harris trade” to pick stocks and market sectors likely to perform well based on which candidate wins the presidential election. Investors should be very wary of those picks. Analysts did the same thing during the last election, and the results have been mixed at best.

For instance, Joe Biden campaigned on the importance of renewable energy and national infrastructure, and he criticized several technology companies for not paying more taxes. So, many analysts assumed technology stocks would struggle during a Biden presidency, partly because he promised to raise the corporate tax rate, and that renewable energy and infrastructure stocks would flourish.

Consequently, the Invesco Solar ETF and the Global X U.S. Infrastructure Development ETF were popular recommendations following the 2020 election. Guess what happened? The technology sector has crushed both index funds since Biden took office, and the Invesco Solar ETF has actually declined 66%.

Here’s the bottom line: It’s OK to consider which stocks or sectors may do well with a certain political party in power. That type of creative thinking can be helpful. But making investment decisions based solely on which political party controls the White House is nonsensical.