Republican or Democratic Party: Does it Impact Stocks?
Key takeaways
Data shows that the stock market has performed well under both Republicans and Democrats.
Republicans and Democrats believe that having a president from their party in office will impact the stock market, the economy, and their personal finances.
Historically, the S&P 500 has performed better under Democratic presidents. Under Trump's presidency, it experienced notable growth.
Both Republican and Democratic administrations can have significant impacts on the stock market, but the nature of that impact depends on their policies, external factors, and broader economic trends. Historically, data shows that the stock market has performed well under both parties, but the underlying drivers and approaches to economic management differ.
Historically, the stock market has tended to perform better under Democratic presidents. For example, research studies have shown that the S&P 500 has averaged higher annual returns under Democrats. From 1933 to 2020, the average annual return for the S&P 500 under Democratic presidents was around 10.2%, compared to 6.9% under Republicans.
On the other hand, Republicans often prioritize lowering taxes and reducing government regulations, which are seen as market-friendly, particularly for businesses and high-income investors. These policies can create short-term gains in stock prices as businesses and investors see increased earnings and cash flow. Read on to learn more about political parties and their impact on stocks.
Trump's rhetoric on how his presidency would impact stocks
Trump's rhetoric has consistently emphasized economic growth and market strength. With the rise of the stock market during his presidency, Trump believes it was an indicator of his successful economic policies. He cited market performance under his administration, especially during the early years of his presidency, where stock indices like the Dow Jones Industrial Average and S&P 500 hit record highs.
Trump has frequently warned that a Democratic presidency would hurt the stock market, asserting that the policies of his opponents, including higher taxes and increased regulation, would damage corporate profitability, leading to market downturns. He has often predicted that if Democrats took control of the White House, markets would see sharp declines, and investor wealth would be at risk.
Trump's presidential campaign financial policies
Trump has continued to advocate for extending the 2017 Tax Cuts and Jobs Act, which reduced the corporate tax rate from 35% to 21% and lowered individual tax rates across income brackets. He has positioned this as a key driver of economic growth, promising that lower taxes will continue to boost job creation, increase corporate profitability, and keep the stock market strong.
One of Trump’s core policy pillars has been cutting back on federal regulations, particularly for businesses. He argues that deregulation reduces bureaucratic barriers and allows industries, particularly energy, manufacturing, and financial services, to operate more efficiently.
As for monetary policy, Trump publicly criticized the Federal Reserve during his presidency, particularly for not keeping interest rates low enough to stimulate the economy. While the Federal Reserve operates independently, his stance on monetary policy is to favor lower interest rates to encourage borrowing, spending, and investment.
Harris' rhetoric on how her presidency would impact stocks
Based on her current policy positions and political actions, Harris’ rhetoric and track record suggest that her presidency might introduce a mix of stricter corporate regulations and progressive economic policies. While certain sectors, such as green energy, infrastructure, and health care services, could see benefits, industries like big tech, pharmaceuticals, and traditional energy might face increased regulatory challenges.
Harris' focus on wealth redistribution and corporate accountability would likely have both short-term pressures on stock market performance but could lead to more sustainable, long-term growth in certain sectors.
Harris' presidential campaign financial policies
Harris' financial policies during her presidential campaign are largely aligned with the broader Democratic Party agenda, focusing on equity, economic growth, and reducing income inequality. For taxation reform, Harris has proposed increasing taxes on the wealthy to address income inequality, including reversing elements of the Trump tax cuts that benefitted corporations and the top 1% of earners. She also supports raising the corporate tax rate, ensuring that large corporations and high-income individuals pay a fairer share of taxes, which could be used to fund social programs and infrastructure improvements.
Harris also has consistently supported tighter regulation of financial institutions, advocating for transparency, and consumer protections. Her stance is particularly influenced by her time as California Attorney General, where she aggressively pursued cases against big banks and mortgage lenders in the aftermath of the 2008 financial crisis. And as vice president, she has backed Biden's policies on regulating cryptocurrencies, cracking down on bank fees, and ensuring financial transparency for hedge funds.
Republican & Democratic Party supporters' views on the market
Both Republican and Democratic supporters believe that having a president from their party in office will impact the stock market, the economy, and their personal finances, but their views on how this will differ significantly based on their political ideologies and priorities.
Here's a look at Republicans vs Democrats priorities.
Source: Survey of US adults Jan. 16-20, 2024. Pew Research Center
Historical S&P 500 performance under Republican & Democratic Parties
Historically, the S&P 500 has performed better under Democratic presidents. Several studies have shown that average annual returns are higher during Democratic presidencies than Republican ones. For example, according to data analyzed by LPL Financial between 1952 and 2020, the S&P 500’s average annual return during Democratic administrations was around 10.8%. In a CFRA Research study covering 1945 to 2020, it found that the S&P 500 delivered an average annual gain of 10.2% under Democratic presidents, compared to 6.9% under Republicans, with President Bush II's term enduring a stock market crash and 31.5% S&P 500 decline.
For a historical perspective, we've also conducted a review of the S&P 500 during presidential election years.
Recessions: More under the Republican or Democratic Parties?
The relationship between political parties and recessions is complex and not solely determined by which party holds the presidency. There is no clear-cut answer to whether more recessions have occurred under Republican or Democratic administrations, but here are some historical insights.
Historically, several notable recessions have occurred during Republican presidencies, including the Great Recession (2007-2009) under George W. Bush and recessions during the Nixon and Ford administrations. The early 1980s recession also took place under Ronald Reagan, though it followed a period of high inflation from the previous Democratic administration.
There have been fewer recessions during Democratic presidencies in recent decades. For example, Bill Clinton’s two terms in the 1990s saw economic growth and no recession. Barack Obama inherited the Great Recession but presided over a recovery that extended into his two terms. However, earlier in the 20th century, there were recessions during Democratic presidencies, such as under Franklin D. Roosevelt before World War II.
Economic upticks: More under the Republican or Democratic Party?
On average, economic upticks, particularly in terms of GDP growth, stock market performance, and job creation, have been stronger under Democratic administrations. However, Republicans have prioritized policies that stimulate business activity and market confidence in the short term, particularly through tax cuts and deregulation. Many external factors (global events, economic cycles) also influence these trends, making it difficult to directly attribute economic success solely to a political party.
Conclusion
There are historical insights showing political parties matter with some stock market aspects performing one way vs another, but it's a grey area. Many different factors need to be considered, such as the party philosophies and economic trends. For this year's two candidates, their campaigns are set against an S&P 500 enduring a record run this year. But that's just one piece of the puzzle for political parties and the stock market.
FAQs about Trump and Harris
When was the first Trump and Harris debate?
Trump and Harris had one debate on Sept. 10, 2024. Harris challenged Trump to a second debate but he declined. On June 27, 2024, Trump debated President Biden when they were the two nominees for their respective parties.
Did the stock market react to the first Trump and Harris debate?
The stock market reacted with caution following the first Trump and Harris debate. There was no significant movement, as neither candidate introduced new, detailed economic policies that shifted market sentiment. Instead, Wall Street remained focused on broader economic concerns like inflation and upcoming Federal Reserve decisions. The Dow Jones, S&P 500, and Nasdaq futures all dipped slightly by 0.3-0.45%, reflecting the market's wariness.
