Market Returns by Political Party

The video explores market returns under different US political party control scenarios, analyzing the S&P 500's performance based on presidential party, congressional control, and combinations thereof. The presenter emphasizes an objective, data-driven approach, noting surprise at some findings. A general observation is that the stock market, represented by the S&P 500, has historically trended upwards regardless of who is in power, especially since 2009. However, deeper analysis of average and median annual returns reveals significant differences based on political regimes. When Democrats held a sweep (presidency, Senate, and House), the average annual return was 8%, with a median of 10.5%. In contrast, Republican sweeps yielded a higher average return of 13.3% and a median of 13.1%. This finding was surprising to the presenter, especially considering the historical data that many recessions occurred under Republican presidents. The explanation offered is that many of these recessions happened when the Republican president did not have a unified Congress, i.e., a split Congress or a Democratic Congress. The data shows that a Republican president with a split Congress resulted in an average return of 7.5% and a median of 14.7%. However, a Republican president with a full Democratic Congress saw a significant drop in market performance, with an average return of only 4.9% and a median of 4%. This combination represents the lowest returns among the analyzed scenarios. Conversely, the most bullish periods for the S&P 500, on average, occurred under Democratic presidents when they did not have a full sweep. Specifically, a Democratic president with a split Congress showed an average return of 17% and a median of 18.3%. When a Democratic president had a Republican Congress, the average return was 16.2% with a median of 19.7%. This suggests that Democratic presidencies with divided government have historically been the most favorable for the stock market. The presentation then delves into the annual return distribution by regime. While Democratic sweeps have seen negative years (e.g., 1994, 2022), they generally trend positive. A particularly striking observation is that under a Democratic president with a split Congress, there has not been a single negative year in the analyzed period, with the worst year being 2011 with a 4% return. The presenter highlights that the best single year for the S&P 500 was 1954, with a 45% return, during a Republican sweep. This single data point significantly boosts the average return for Republican sweeps. This historical analysis generally goes back to around 1953 to ensure consistency in political party definitions. The scenarios with a Republican president and a Democratic Congress are consistently shown to be among the worst for the stock market, with significant negative returns in years like 2008 (down over 38%), 1974 (down 30%), and 1973 (down almost 18%). The video touches upon the presidential cycle, noting that, on average, year three (pre-election year) is the best, while the midterm year is historically the worst. However, current market performance in a midterm year is noted as being relatively strong. The analysis extends to other assets, including the US dollar and Bitcoin. For the dollar, returns since 1980 show it tends to drop the most under a Republican sweep and rise the most under a Democratic president with a Republican Congress. The dollar also historically performs worst in midterm years, though recent performance has deviated from this trend. Bitcoin's data, available since 2013, shows mixed results. Democratic sweeps have been bearish for Bitcoin on average (-2% return), largely due to significant drops in 2022 offsetting gains in 2021. Republican sweeps have shown a high average return (410%), heavily skewed by a massive gain in 2017. The median return under both Democratic and Republican sweeps is negative (-6%), indicating that sweeps have generally been bearish for Bitcoin when considering the median performance. The highest median returns for Bitcoin are seen under a Democratic president with a split Congress or a Republican president with a split Congress. This is hypothesized to be due to reduced uncertainty, as divided government necessitates compromise. Finally, the video examines gold. Gold performs best under a Republican sweep, which aligns with the current political landscape. Conversely, Democratic sweeps are not as good for gold, and the worst returns for gold occur under a Democratic president with a Republican Congress. The presenter concludes by reiterating that the data suggests Republican sweeps have historically been better for the stock market than Democratic sweeps, but that divided government under a Democratic president can be very bullish, while a Republican president with a Democratic Congress is quite bearish. The presenter emphasizes a commitment to presenting data without a specific narrative.