The long presidential campaign thankfully ends next Tuesday, and investors wondering how the political winds will blow on Wall Street might be interested in the following history lesson: annual returns for the S&P 500 index are generally higher during the first full year of Democratic administrations.
According to research from Savant Capital Management in Rockford, Ill., since 1948 the S&P 500 has gained 15.8% in the first full year under a Democratic president versus 11.2% for Republicans. And since 1952, a newly-elected or re-elected Republican president was in office during six of the seven first full years after a presidential election that experienced negative returns. Those occurred under Dwight Eisenhower (twice), Richard Nixon (twice) and the first terms for both Ronald Reagan and George W. Bush. Jimmy Carter was the lone Democrat with negative stock market returns during his first year.
But in the spirit of bipartisanship, Savant found that Democrats controlled Congress during four of those seven negative first years.
Some observers contend that stronger first-year performance during Democratic presidents might be just a delayed carry-over from prior Republican administrations, such as when Bill Clinton took office in 1992 as the nation was pulling out of a recession. Conversely, George W. Bush's first term in 2001 came in the midst of the tech bubble collapse.
In the end, making investments based on which party wins the White House makes as much sense as other investment fads such as the Dogs of the Dow theory, which conference wins the Super Bowl, "and even whether hemlines are rising or falling," said Greg Carlson, CEO of Carlson Capital Management in Northfield, Minn.