In 2020, former President Donald Trump warned that the historic stock market boom on his watch would implode if voters replaced him with Joe Biden.
“If you want your 401k’s and stocks…to disintegrate and disappear, vote for the Radical Left Do Nothing Democrats and Corrupt Joe Biden,” Trump tweeted in July 2020.
It was an ominous warning from a president who, more than his predecessors, obsessed over market gains and viewed them as a real-time barometer of his success.
In reality, with Biden in the White House, the US stock market not only preserved those Trump-era gains, but generated even more massive ones for millions of Americans’ 401(k) plans, nest eggs and college savings plans.
The S&P 500, the gold-standard market index of 500 US stocks, has posted a compound annual growth rate of 14.1% from Biden’s November 2020 election through Thursday’s closing bell, according to veteran market strategist Sam Stovall of CFRA Research.
The market returns under Biden are the second best in modern history going back to 1945, Stovall found. The only stronger performance was during the booming dotcom days under former President Bill Clinton during the 1990s.
The findings are surprising given the relatively low marks Americans give Biden on the economy and how the issue remains a challenge for Vice President Kamala Harris, who Biden tapped to succeed him.
Yet the Biden-era gains reflect the US economy’s relentless rebound from the pandemic, the historic period of low unemployment and the artificial intelligence gold rush on Wall Steet.
“Biden benefited from the tech-fueled recovery following the shallow and swift bear markets of 2020 and 2022,” Stovall said.
Trump presided over market surge
But the market also boomed under Trump.
The S&P 500 enjoyed a compound annual growth rate of 12.1% from Trump’s surprise election in November 2016 through Biden’s 2020 victory, according to CFRA. That’s the third best performance in modern history, behind only Clinton and Biden.
“The Trump market was so strong because of a combination of very low inflation, very low interest rates and tax cuts,” said Stovall.
Another way to measure presidential market performance would be to start from the moment they are sworn in. By that metric, the S&P 500’s growth rate of 14.1% under Trump is second all-time, just ahead of 13.8% under Barack Obama and well ahead of the 10.3% under Biden.
However, Stovall said it makes more sense to start the clock at Election Day because that’s when markets start pricing in policy changes.
For instance, US stocks surged after Trump defeated Hillary Clinton in 2016 in a red wave that gave Republicans control of Congress. Wall Street immediately started betting that Trump would be able to enact his agenda, especially massive tax cuts that would juice corporate profits.
“Investors are anticipators. They don’t wait for the actuality,” Stovall said.
Despite a tech-led selloff on Thursday, the S&P 500 still ended October with a year-to-date gain of 19.6%. That makes 2024 its best election year through October since 1936, according to Bespoke Investment Group.
Democrats beat Republicans
History shows that the market tends to rise no matter which party is in power. However, contrary to popular belief that Republican presidents are better for the economy and the market, Democrats have enjoyed stronger market gains and faster economic growth.
The S&P 500’s growth rate under Democrats is 10% compared with 6.7% under Republicans, according to CFRA. Gross domestic product has averaged 3.9% under Democratic presidents, well ahead of the 2.4% under Republicans.
“Whether it is by coincidence or causation, historical evidence suggests that the market and economy perform better under Democratic presidential leadership,” Brian Belski, chief investment strategist at BMO Capital Markets, wrote in a note to clients earlier this week.
All Democratic presidents have enjoyed a rising stock market during their time in office, led by the 16.5% compound annual growth rate under Clinton.
Two Republicans presided over market downturns: Richard M. Nixon (-4.1% compound annual growth rate) and George W. Bush. Bush ranked last among the 14 presidents since 1945.
Part of that disparity could have to do with which presidents had recession occur during their terms.
Before early 2020, Trump was on track to be the first Republican president since 1945 to avoid a recession. But then Covid-19 crashed the economy, causing unemployment to skyrocket and GDP to crash.
By contrast, none of the Democratic presidents since 1945 have had a recession occur during their terms, according to CFRA.
Bush inherited the bursting of the dotcom bubble, which helped start a recession just a few months after he took office. Bush was also in office during the 2008 financial crisis and the Great Recession.
“Republican presidents – specifically Richard Nixon and George W. Bush – have had the misfortune of presiding over periods of economic deterioration rather than economic prosperity, leading to lower market returns,” Belski wrote.
Gridlock is good?
Of course, the composition of Congress plays a huge role in how much of a president’s campaign promises can become reality. When the opposing party controls Congress, there is a natural check on the White House that often prevents presidents from enacting controversial legislation.
Investors know this and there’s even an old market mantra that “gridlock is good” because it prevents Washington from meddling too much with the economy.
Indeed, Stovall found that the best market performance historically has occurred under a Democratic president with a split Congress. In those six years since 1945, where such a dynamic has been in place, the S&P 500 has enjoyed a sizzling growth rate of 16.8%.
Market returns have been weakest when there is a Republican president with a Democratic Congress.
Still, markets performed well in the past when there is unified government, with one party controlling the White House and both chambers of Congress.
And gridlock comes with risks because it can paralyze Congress on must-pass legislation such as the debt ceiling. It can also complicate and slow down rescue packages during times of crisis.
Tax cuts don’t necessarily boost stocks
One risk investors have been mulling this year is that some or all of the 2017 tax cuts are allowed to expire in 2025, causing rates to surge.
Trump has vowed to fully extend his signature tax law, but Democrats in Congress and Harris have called for rolling some of it back.
“The prospect of any sort of tax increase has always spooked investors since the perception is that higher rates would impede stock market performance potential,” BMO’s Belski wrote. “We understand the consternation, nobody wants to pay higher taxes, but the prevailing wisdom that tax hikes destroy markets is misguided if history is any sort of guide.”
BMO found that there is “little proof” that lower individual, corporate and capital gains tax rates boost the market.
In fact, the market has generally performed better during times of higher, not lower, tax rates across changes in all three categories, BMO found.
As with many things, presidents often get too much credit for market booms, and too much blame for the busts.
Although presidential decisions and landmark legislation can have a real impact, markets are influenced by other factors such as wars, interest rates and most importantly the timing of recessions.
