image:Flickr/Cain and Todd Benson
An excerpt from my most recent newsletter: You can view the entire newsletter here
Stock Market Performance: Republicans vs Democrats
The November elections are fast approaching. Many investors will be tuning in to see who has the better plan for fixing the US economy.
But does it really matter who wins in terms of stock market performance?
Interestingly, the data points heavily in favor of the Democrats.
“The Presidential Puzzle: Political Cycles and the Stock Market”
A study published in the Journal of Finance titled “The Presidential Puzzle: Political Cycles and the Stock Market” examined historical data to show the following:
|Portfolio||Returns Under Republican Administrations||Returns Under Democratic Administrations|
Further investigation reveals the results were generated by higher real returns and lower interest rates under Democratic administrations.
Business cycle fluctuations showed no correlation to the results, demonstrating statistically significant higher market performance during Democratic administrations regardless of underlying economic conditions.
Value-weighted portfolios posted a steady 10% premium in favor of the Democrats, while equal-weighted portfolios posted a near 20% premium.
Examination of additional business cycle variables revealed that expected returns (those anticipated by the markets) were 1.8% higher under the Republican administrations analyzed in the study, while unexpected returns were 10.8% higher when Democrats were in power, suggesting that stock market results may be driven by Democratic policies that surprise investors.
Interestingly, the results do not show up in close proximity to election dates, but rather grow over time during the president’s term.
Odds On Winning
Obama’s odds of winning currently stand at 63.4, while Romney’s odds are at 36.6%. (Data as of 9/13/12).
For our Clients and ARTAIS Fund investors, it doesn’t matter who ends up in the White House in November. (Or I should say, it doesn’t matter to your portfolio.) Our strategies were created to adapt to — and take advantage of — the ups and downs of the market, regardless of who holds the reigns in Washington.