There’s no shortage of people predicting who will become the next president of the U.S. And oftentimes voters base their judgments on who they believe will be best for the economy and the financial markets.
One aspect of the economy they’re most focused on is the labor market, noted Yusuf Abugideiri, chief investment officer and partner at Yeske Buie, a financial planning firm with offices in Vienna, Va., and San Francisco. They want to know, “What about jobs? Is the next president going to create more jobs? How is job market stability going to be affected by the next president?”
But according to research from Dimensional Fund Advisors and YCharts, the markets and the economy don’t care who’s in the Oval Office, Abugideiri said during a webinar last week called “Election Season: Does the Market Care Who’s President?”
“Regardless of who is president, the markets are going to do what markets are going to do and that is process information and indicate an expectation of where things are headed based on that expectation,” Abugideiri said. Markets, he said, “represent that aggregate of individuals’ actions, and individuals are creative and resilient and growth-seeking, and therefore the aggregate representation of their behavior should also exhibit a bias toward growth regardless of who is president.”
Dave Yeske, founder and managing partner of Yeske Buie, who joined Abugideiri on the webinar, seconded that. “We are not saying that elections are not consequential. What happens politically, what happens in an election year and in every other year matters; it’s just not as important to the economy and to the markets as we might assume,” he said.
What’s more important, Yeske said, is that “the 300 million Americans and 8 billion people worldwide going about the daily business of earning, saving, spending and investing are going to drive what happens in the economy and the markets far more than who is president of the U.S. or who is prime minister of the U.K. or any other political leader.”
Exponential Growth
Abugideiri pointed to a chart showing a consistent upward sloping trend of a dollar invested in the S&P 500 from January 1926 to December 2023, growing exponentially from $10 to $10,000. And that, he noted, happened regardless of a single- or dual-term president or whether he was a Republican or a Democrat.
The same thing applies to Congress, Abugideiri noted. The market does not care if Congress is being controlled by Democrats, Republicans or both parties, he said, noting the same positive S&P 500 returns.
Abugideiri also pointed out that over the same period, Democrats have had 34 unified controls of Congress while Republicans have had 13, and regardless of which party had control, the average annual returns were exactly the same at 14.52%.
In looking at the market returns during the years of the last 12 presidents (six Democrats, including Joe Biden, and six Republicans), Abugideiri said the highest returns were recorded during Bill Clinton’s and Barack Obama’s presidencies at 210% and 181%, respectively. The only two presidents who clocked negative returns were Richard Nixon (-20%) and George W. Bush (-37%).
But Abugideiri added that giving credit to either Clinton or Obama for high market returns or blaming Nixon or Bush for negative returns would be shortsighted; it would ignore many of the factors influencing market returns during their terms. “And so, trying to focus on one singular variable, even if that is who the president is, isn’t a way to actually break down the full story of why markets are doing what they are doing,” Abugideiri said.
He noted that Clinton happened to be president when the internet was developed. “Bill Clinton did not invent the internet, nor was he responsible for the tech boom that drove market returns, specifically in the U.S., just as easily through the roof in the ’90s.” Abugideiri noted that similar narratives can be drawn and deconstructed from all the other presidents just by looking at one of the uncountable number of variables influencing market returns at any given point.
The Unluckiest President
George W. Bush, he noted, must have been the unluckiest president in our nation’s history when it comes to market timing. His years in office saw the 9-11 attacks, the dot-com meltdown, a housing crisis triggered by risky lending practices and the financial market collapses that followed. “What George W. Bush had to navigate in terms of financial and economic conditions was just unique relative to some of the other presidents that I observe during this time frame,” Abugideiri said.
As the market began to tank in 2000 under Bush, Abugideiri said the All-Country World Index was down 10%. He said that Yeske Buie’s globally diversified portfolio favoring value stocks and small companies fared better, accounting for a 22.5% outperformance relative to the benchmark that year.
“It was those small company-value and especially international stocks that came back and rescued us,” added Yeske. “International [small-cap] was up, global real estate was up, bonds were up, all those things that people were questioning in the late ’90s came back and rescued us in 2000 when the rest of the world was falling apart,” he said. Yeske further pointed out that the Nasdaq was tech-heavy and fell 80%. “So, if you were really focusing on tech, you got slaughtered in 2000.”
Yeske Buie’s portfolio, Abugideiri noted, continued to perform well throughout several of the years that overlapped with Bush’s presidency, but he reiterated that the negative market performance had nothing to do with who was president.
“There are macroeconomic factors that are always at work for which the president cannot be praised or blamed. You just have to look under the hood,” added Yeske.
But that’s not to say the president or leadership does not matter. “We absolutely believe that who is in leadership and how they conduct themselves while in office absolutely matters,” Abugideiri acknowledged.
Nor is the economy guided by who sits in the Oval Office, they said. Abugideiri pointed out that under Trump, for example, the trend for average hourly earnings was positive before Biden took office and it remained unaffected after Biden became president. The unemployment rate peaked at 14.7% under Trump because of Covid-19; Abugideiri noted that it improved and continued to improve under Biden, adding that the same can be said for the labor force participation rate.
As for the gross domestic product, Abugideiri said that over the past eight years the trend has been persistent, with Covid causing the only dislocation. The average rate even with inflation over the past several years has been 2.3% gross GDP and it’s been growing by 5.73% year over year for the past seven years, he said.
Abugideiri and Yeske noted that even the impact of a strong interest rate increase over the past couple of years has not slowed GDP. “If we want to talk about historical precedent, this is somewhat unusual that the Federal Reserve would raise rates as dramatically as they have and not see the economy slip into recession,” Yeske said, adding that inflation has also been coming down since 2022 and yet the economy has continued its strong growth.
The economic indicators have been rosy since 2001, with the unemployment rate remaining steady, Abugideiri noted, pointing out that, “We were at full employment rate (3.9%) at the end of 2000, and we are at full employment (3.9%) now.” He explained that full employment is defined by an unemployment rate of 4% or less. The same is true for the inflation rate, which was 3.4% at the beginning of this period 20 years ago and is now 3.36%.
“And through it all, the most critical piece is the GDP average annual growth of economic output of 4.4% over the 20-year-period,” Abugideiri said. “That’s three recessions, four presidents (two from each party) and a really strong growth rate.”