The Election and the Market: Debunking Myths and Exploring Realities

Opinion Piece by Jim Webb, CFP

Recently, I attended the memorial service of a friend when a fellow mourner shared what was weighing heaviest on their mind at the moment; they wanted my thoughts on the upcoming election's impact on the market. This is not uncommon as the upcoming election approaches. Many Americans find the future for the investment markets to be on the forefront of their minds. My answer was a concise, "I am ambivalent."  To expound my response with some key details in this opinion piece, we will examine the data displaying that the relationship between the party in power and market performance is far more nuanced.

The Historical Perspective

There’s a pervasive belief that the highest office in the land, particularly when occupied by a Republican candidate, guarantees that the stock market will remain consistently robust. While many voters associate Republican leadership with greater fiscal responsibility and stronger markets, historical evidence tells a different story. Statistically speaking, there is no significant difference in market performance based solely upon which party occupies the Oval Office. Spoiler Alert: Market cycles do not adhere strictly to party lines! The method, however, behind how a single political party holds power can have a considerable impact under certain conditions.

Consider what I believe to the worst-case scenario in terms of maintaining a healthy partisanship: When the party in the White House holds the Senate and House majority.

This scenario has occurred about 16 times in modern history. During these periods, the market performed well below its average annual performance. This challenges the narrative that a unified government — particularly under Republican control — automatically translates into a robust market. 

The Client Perspective

If I were to poll 100 of my friends and clients, the majority would agree with the belief that the market performs better under Republican leadership. This perspective is rooted in long-standing economic narratives and the confidence in Republican fiscal conservatism. However, it's essential to examine these assumptions critically, recognizing that markets are influenced by a multitude of factors beyond the party affiliation of the president or the perception of either party's conservative or ostentatious labels.

What Really Impacts the Market?

The answer to what influences the market most clearly points to one crucial entity: the Federal Reserve. The President of the United States holds the power to appoint, reappoint, or replace the Federal Reserve chairman, followed, ideally, by a Senate vote of confirmation as a check and balance. The Federal Reserve chairman serves a term of three to four years, with the possibility of reappointment every four years. Their decisions can significantly affect interest rates, inflation, overall economic growth and most certainly, the market! 

This relationship allows the sitting president to exert influence over monetary policy , at least initially with their chosen FED Chairman— a factor that has a far more direct impact on economic conditions and the market than the political party of the president alone. Should the president opt to replace the chairman, they often ask the former chairman to remain as a FED Governor, further impacting the potential influence a president can have on the direction of the economy and the market.

The Complexity of Economic Performance

It's important to remember that the prevailing view of either party or even their fiscal responsibility does not guarantee better market performance. History has shown that significantly poorer performance often coincides with a single party controlling the presidency, house, and senate. This reality calls into question the simplistic association of party politics with market outcomes.

The market's performance is far more influenced by the actions of the Federal Reserve and the overall economic landscape than by the political party in power. As we move closer towards the election, it's crucial to focus on the factors that truly impact our economy and the market rather than relying solely on partisan assumptions.

The information presented in this newsletter is the opinion of Stirlingshire Investments Inc. and its subsidiaries, Stirlingshire BD LLC and Stirlingshire RIA LLC and does not reflect the view of any other person or entity. The information provided is believed to be from reliable sources, but no liability is accepted for inaccuracies. This is for information purposes and should not be construed as an investment recommendation. Past performance is no guarantee of future performance. This material is provided to for informational purposes only and should not be construed as a recommendation. Investors should carefully consider the investment objectives, risks, charges, and expenses associated with any investment. Please contact your Stirlingshire Investment Adviser or Broker for recommendations tailored to your specific circumstances. Stirlingshire RIA LLC is an investment adviser registered with the U.S. Securities and Exchange Commission. Stirlingshire BD LLC is a broker-dealer registered with the SEC and a member of the Financial Industry Regulatory Authority (FINRA) and the Securities Investor Protection Corporation.