A common argument for electing a Republican president is that Republicans are “pro-business” and Democrats are not. But, if you look at how the stock market has responded to administrations going back to Truman, you see a different story. Assuming that Biden’s lead in the polls translates into a victory in November, how will the market respond to a Biden presidency? To get a clue about how the market responded to both brands of politics, we looked at the numbers.

Stock Market Results with Both Democrats and Republicans

As a hint, the market tends to do better under Democrats! Here is how the S&P 500 did under presidents from Truman to Trump.
Democrats

• Clinton: Up 210%
• Obama: Up 182%
• Truman: Up 87%
• Johnson: Up 46%
• Carter: Up 28%
• Kennedy: Up 16%

Average: Up 95%

Republicans:

• Eisenhower: Up 129%
• Reagan: Up 117%
• Bush I: 51%
• Trump: Up 43%
• Ford: Up 26%
• Nixon: Down 20%
• Bush II: Down 40%

Average: Up 44%

How Will the Market Respond to a Biden Presidency?

We expect to see some selling this fall if it becomes clear than Biden will win. However, a greater driver of stock prices going forward will be profits. The tech sector continues to lead the market with earnings although Microsoft just fell a few percent on less-than-hoped-for earnings. The corona virus pandemic coupled with a Republican hesitancy to continue with economic stimulus payments will drive down spending and may hit hard at the end of the Trump presidency. If there is a wholesale change in governance with a Democratic majority in both houses of congress as well as a Democratic president we expect to see massive spending on infrastructure projects that will last for years. With interest rates likely to remain low for some time this will not be a drag on the economy and will stimulate spending and growth across the board.

If the market takes another hit at the end of the Trump presidency, there will be nowhere to go but up for the next administration. This would be a picture similar to the Bush II to Obama transition where a 40% fall off in the S&P 500 left lots of room to grow over the following years.

Investing, Politics, Pandemics, and the Economy

We believe that the biggest driver of the economy and the markets over the next months and years will be the covid-19 pandemic. To the extent that governments do well in managing this crisis, their economies and their stock markets will prosper. To the extent that governments adopt a “head-in-the-sand” approach like an ostrich, there will be trouble. We are seeing this now in the USA, Mexico, and Brazil where leaders have neglected this issue in hopes that it will just go away. This will be burden on these societies and their governments going forward. When, hopefully, a vaccine becomes available it is essential that people get the vaccine as patriotic duty as much as to protect themselves and their families. To the extent that this does not happen it will make little difference who controls the Oval Office and the halls of Congress.