Contrary to Popular Belief, Data Shows Democrats Are Good for the Markets

The Trump administration is now part of history, and the White House has a new occupant: Joe Biden was sworn in as the 46th President of the United States this Wednesday (Jan 20).

The popular belief is that the stock market and the economy, in general, perform better under Republican presidents because democratic administrations are associated with higher taxes and more regulation.

What the numbers show, though, is that blue administrations can be favorable for investors.

According to the British investment bank Liberum, since 1947, the S&P 500 has posted a total annual return of 10.8%, adjusted for inflation, under Democratic presidents, versus 5.6% under Republican presidents.

Even excluding the Great Recession and the Covid-19 pandemic, which happened under a Republican president, the data shows stronger returns under Democratic administrations versus Republican administration returns.

The U.S. stock market is indeed much higher now than when President Donald Trump took office in 2017.

From his inauguration until the market closed on Jan 19, the last full day of Trump in office, the S&P 500 gained 67%, the Nasdaq Composite skyrocketed 138%, and the Dow was up 56%.

The S&P 500, the benchmark index, set 150 records during Trump’s one-term presidency. The Nasdaq posted a 24.17% annualized return, the largest under a president since the exchange debut in 1971, and set 183 records.

But the Dow, for instance, offered a higher annualized return under President Barack Obama than Trump – 12.1% versus 11.8%, as stated by LPL Research.

All these numbers just show one thing: the markets really don’t care which party is at the White House.

Biden’s tax plan includes some increases, like rising to 39.6% from 37% the tax for those whose earnings are over $400,000 per year; a tax rate of 39.6% on income above $1 million for long-term capital gains and qualified dividends; and a climb in the corporate tax rate from 21% to 28% (in 2017, Trump cut the corporate tax rate from 35% to 21%).

These changes are not likely to happen in the short-term and before the economy improves, especially considering the slim majority Democrats have in the Senate and the House.

Biden already proposed a $1.9 trillion relief package to help individuals, boost Covid-vaccine distribution, and provide funds for state and local governments. Some believe the amount will be cut before it passes through Congress.

Another economic plan is expected to be unveiled between February and March with more long-term goals, like promoting job growth and infrastructure spending.