Friday Reader Question

As summer transitions into fall, the spotlight is increasingly turning to what will likely be the biggest news event of 2024—the Presidential Election.

This was highlighted this week with the first debate between Donald Trump and Kamala Harris.

We will refrain from any commentary on the debate, but it did produce many reader questions.

Readers were interested to understand how the debate might impact the outlook for the stock market. There were also several questions about the impact on specific sectors and specific policies.

The impact on the sectors and the individual policies is an interesting question. The agenda of a particular President and/or a political party controlling both Houses of Congress can absolutely have an impact on sectors.

As of now, not only do we not know who will win the election, but we also have little clarity on the actual policies the candidates will implement if elected. Some may disagree, but it feels like we've heard little substance on policy and, frankly, don't trust either candidate at this point.

The question of how the election will impact the overall stock market, though, is answerable. In fact, we have incredibly strong historical data that supports an overwhelming conclusion. THIS question is an easy one.

IT DOES NOT MATTER.

Does that surprise you? Most feel that both parties have leaned heavily into their far reaches and there is an incredible difference from a policy perspective. We don’t disagree.

We don’t, however, think this is new. Extreme political disagreement has existed in this country for centuries. It is the norm and not the exception.

Given that perspective, one would think that changing from one party to the other would have a significant impact on the stock market.

Well, we have a century of data, and it just does not.

Here are some charts we found on a website called Y Charts.

Here is the first one…

This well-formatted chart shows the performance by respective political party in Congress and the White House. 

While there is one outlier (a Republican President and Democratic Congress), most of the time the numbers group around a low double-digit return.

In case you are wondering, we often have a mixed Congress and White House.

Some critics might argue that the numbers look better under a Democratic president. While this is true to an extent, a closer look at the data reveals that it largely comes down to the timing of a few brief periods, particularly in the 1970s and during the Internet Bubble.

Another critic might also point out that a Democratic Congress is by far the worst. Again, we think timing plays a role.

Ultimately, we look at the data, and the data shows that it doesn't really make a significant difference.

Here is another graphic showing the performance of each Presidency going back to 1929…

On average, returns across all administrations have been just over 9.5% during their terms. While the Great Depression and Herbert Hoover’s presidency clearly skewed the data, returns have otherwise remained fairly consistent.

Our favorite chart shows the stock market overlayed over the President and their party going back to the administration of John F. Kennedy…

The key takeaway from this chart is that, regardless of who occupies the White House, the stock market tends to rise over the long term.

One of the many great things about America is the strength of our system. Folks don’t talk about this much these days, but we have a powerful system of “checks and balances” that sustains our growth and stability.

Politics generates a lot of emotions for many of us. It would be easy to translate those passions into your trading and investing strategies. We are all human.

Remember, though, that emotions and passions are the enemy of your success as a trader and investor. By overcoming these tendencies yourself while others give in to them, you will be able to take advantage of the opportunities.

It might be hard, but tune out the “noise” of the election and focus on your PROCESS.

Plan the Trade, Trade the Plan.