As part of his bid for a second presidential term, one of Donald Trump’s assertions is that he is responsible for the greatest stock market gain of any president. Putting aside his usual hyperbole, has the stock market in fact done better under him than under past presidents? And more interestingly, can we use historical market performance data to infer whether or not there is any identifiable cause and effect between a president’s period in office and market performance?
Above is a chart from Dimensional Fund Advisors showing the average return of the Standard & Poor’s 500 for each presidential term going back to 1929 (red for Republicans and blue for Democrats). In Trump’s case, the data extends only through 2019, meaning the impact of COVID on the stock market this year is completely excluded.
What can we infer from this data? First, Trump’s claim of market outperformance is – to borrow a phrase he is so fond of using – fake news. The S&P 500 performed slightly better under Trump than under Barack Obama, but worse than under some of the terms of presidents Bill Clinton, Ronald Reagan, Dwight D. Eisenhower, Harry S. Truman and Franklin D. Roosevelt.
Another fact: There were only two times when a presidential change coincided with a stock market turnaround. The first was when Roosevelt replaced Herbert Hoover, and the second when Obama replaced George W. Bush. In both cases, the transition occurred amid a deep recession. Whether or not the turnaround was the result of the successor president’s actions is more a matter of opinion than of fact.
As far as the relationship between presidents and stock market performance, there’s nothing in the above data to suggest even any correlation between the two, let alone causation. But there is one fact that literally jumps out: The market declined during only four presidential terms out of the 23 spanning the last 90 years. And the average annual return over the entire period was more than 10%. This serves to illustrate the value of long-term stock market investing in general, regardless of which party’s president happens to be in power.