If there’s anything I’ve learned in the last year, it’s that people just say words. Sometimes they just say words even though they’re not true. Sometimes they say them because they like the sound of their own voice. But generally, people say words because they want to believe something (even if it is factually incorrect).
Some of my favorite falsehoods fall at the cross section of politics and finance. You’ve probably seen this scenario play out before — certain groups of people air their grievances with a certain president or policy by warning that it will bring about some sort of cultural cataclysm that will result in the heat death of American democracy. It’s a rapture they foretell in every election cycle, or whenever convenient, and it’s one that has become even more common as the ugly rhetoric on social media has fed it.
One of the most convenient falsehoods that ends up repeated is that Democrats are bad for markets. This has floated back into the discourse since Joe Biden was elected. The right insists that Biden, a moderate president, is actually a socialist extremist who is going to bring about a market crash through high taxes, social programs and other policy that they probably made up. However, if you take a look at the first-term performance of markets in the tenure of every president since 1929, there is no meaningful correlation between the political party of the President and market returns. There might be some correlation between the composition of the government and market returns, but that might be confounded by other factors.
During the first term of Republican and former President Herbert Hoover, the S&P 500 fell 73%. A knee jerk reaction might be: “Republicans ruin markets.” But that’s because you don’t know the context. Hoover had just entered office in March 1929, the onset of the Great Depression. Did Hoover start the Great Depression? No. Could he have done more to soften the severity of it? Yes. And if he did, he might not have been decisively defeated by a progressive Democrat.
That leads us to Franklin Roosevelt, the progressive Democrat who succeeded Hoover and passed the New Deal. For the unacquainted, the New Deal is credited for creating America’s modern safety net. Democrats praised it. Republicans hated it. But it doesn’t matter. In his first term, the S&P 500 appreciated a nearly 164% gain — and his popularity would enable him to seek three terms as president (when it was still legal). But that 164% gain in his first term didn’t last. By the end of FDR’s presidency, the S&P was only up 96%.
This is just one example that substantiates that the market doesn’t live in a bubble; it has ebbs and flows. The market is one method for understanding the economy, but it is not our economy. It has become a silly political talking point when it benefits us and something we sweep under the rug when it doesn’t. And in that sense, it’s silly to prescribe market performance based on the political party of the President. The reality is that whenever something crazy happens, like a World War, global pandemic, oil crisis, threat of nuclear attack, the president’s job is to lead the country, not the market.
There are many factors influencing our markets. Financial leadership looks to the President, Congress, and the Federal Reserve to decide how to best proceed. But at the end of the day, people don’t weigh the worth of a President by their political affiliation, whether they’ll raise taxes or whether they’ll be good for the market; they weigh the president by the positive and negative impacts they have on the lives of normal people. And perhaps, more importantly, what they do when things go wrong.