Does the Stock Market Care Who Our President Is?

Tyler Gardner (0:00)

Hello, friends. This is Tyler Gardner, welcoming you to another episode of Your Money Guide on the Side, where it is my job to simplify what seems complex, add nuance to what seems simple, and learn from and alongside some of the brightest minds in money, finance, and investing. So let's get started and get you one step closer to where you need to be. Somehow it seems as if every four years, people lose their minds all over again. Understandable, politics are heavy, and elections are ripe with visceral responses from all sides of the literal and metaphorical aisle. Regardless of who's running, who's winning, or who's ultimately holding office, someone, somewhere, always thinks the economy is about to implode. And as we know, this emotional response to potential economic and market volatility transcends political elections. I challenge myself daily just for fun to see exactly how long it takes me to find a reason, any reason, to justify not getting involved in the stock market. And it should come as no surprise that I usually find that reason within about 17 seconds of checking any media once I wake up. I will not be unpacking the fact that negative news sells. But in case for some reason this is the first you're hearing it, just remember, negative news makes way more money than positive news always. And because there's always going to be a reason not to invest, it is both understandable and problematic that many of us continue to wait on the sidelines blaming something, whether it's a presidential election, geopolitical turmoil abroad, or an overvalued market. That part I get, and that part I appreciate. What I don't understand quite as clearly, or at least might not empathize with quite as deeply, is our inability to remind ourselves that this, too, has happened before. And usually, it's been far worse. I connect with people daily who try to convince me that this, this elusive concept of this, has never happened before. We have simply never experienced it, and we should be running to Costco to secure as many five-gallon bins of name your condiment of choice here. Even with Trump's current presidency, I can't avoid having people claim we have never been in such a state of political turmoil. And politics aside, and putting truth forward as frequently as I can, I remind people that, yes, he has been president before, and we have, in fact, lived through four years with Trump holding office. The point being, yes, we have been here before, and more to the point of this episode, so too has the stock market. And as you might see where I'm already going, the market has continued to move up and to the right over time. This is why, personally, regardless of what I hear, from whom I hear it, or where someone thinks the market is going based on your politics du jour, no, I do not ever change my investment strategy based on timely events. So let's start here. The market doesn't care who the president is. I encourage us all to picture the market as something way beyond our nonsense. Yes, it responds to our nonsense in the short run, our greed, our fear, our collective sentiments and reactive tendencies, but in the long run, it remains something well beyond our daily struggles. It remains a reflection of the human spirit's desire to grow, to solve problems, and to disrupt inefficiencies worldwide. Yes, to an extent, it can be viewed as a godlike figure that transcends us, our time period, and certainly a four-year presidency. But I get it. It's fun to pretend that elections dictate market performance, as we crave reasons for what is happening, again, just as many turn to the concept of God in moments of praise or blame, to add some semblance of controlled narrative to the utter chaos that surrounds us. I smile. Sorry, I do. When I picture those waiting for the market to drop or rise, so they can say that it's because of the current president or elected officials. See? The market tanked today all because he's president. I told you it would. See? The market's up this week all because he's president. I knew we had our guy. And yes, I am mocking that reaction, because it's short-sighted, it's wrong, it's divisive, and it's reckless. So let's turn to history and see what the actual numbers say, whether we choose to embrace such reassurance or not. Since 1929, the S&P 500 has averaged about 7% annual return in real terms, regardless of who was in the White House. I want you to think about that for a minute. That's the collective tenure of 18 different presidents, from FDR to Biden, and the market has, well, the market has continued to grow, reaching over 50 all-time highs in 2024 alone. But beyond presidents, it has also survived global wars, recessions, financial crises, dot-com bubbles, inflation spikes, political scandals, everything. And most of these moments were, in reality, far scarier. Again, not to dismiss anybody's politics. But the reality is that there is not currently a global war, nor are we in the midst of a global financial meltdown, nor are we fighting off a global pandemic. But even if we were and even when we did, the market continued to go up and to the right over a long time horizon. Now, sure, some presidents have presided over bigger booms than others. Under Obama, the market went up 181 percent. Under Trump, 67 percent. Biden's term was slightly more volatile, with inflation rearing its ugly head. But the market is still standing. And last I checked, again, it was at or near an all-time high at the time of my writing this episode. And here's what we're so quick to forget. The market doesn't move based on who's sitting in the Oval Office. It often moves, even in the short term, based on business cycles, innovation, interest rates, consumer spending, and consumer sentiment. Sure, I'd be naive to think those things aren't somehow interrelated. But again, we're talking about short-term fluctuations, not long-term patterns, the only patterns that matter for long-term wealth building. Business certainly doesn't come to a halt when a new president takes office. Apple, for example, doesn't take the day off from selling iPhones because of an election. People don't stop eating, driving, or paying their phone bills because of an election. And companies certainly don't stop adapting. If anything, new political cycles and challenges might encourage them to adapt even more quickly to face whatever new problem has presented itself to be solved by the world's top entrepreneurial minds. If you zoom out far enough, you realize that the market is much, much bigger than any one president. Beyond that, in my heart, I believe fully that no president in history has ever woken up and started the day by saying, you know what? Today, I want to implement some policies that will really fuck up markets. I'm sorry. You know that doesn't happen. And if you don't, I'd encourage us to go back to empathy. Go back to what is shared before taking any step forward. Everybody making policy has skin in the game somewhere, somehow, and it is in nobody's best interest to govern a flailing market structure. But enough of my theoretical approach. Let's turn to some numbers to hopefully add some validity to the above claims. Here are five things worth considering if you are one of the few, the proud, those who try to time the market based on who's in office. Number one, know that you have a high probability of underperformance. Empirical evidence indicates that the odds of successfully executing a market timing strategy are slim to none. For instance, Morningstar's Mind the Gap study found that investors earned 9.3% per year on the average dollar they invested in mutual funds and exchange-traded funds over the ten years ending December 30, 2021 But this was approximately 1.7 percentage points less than the total returns their fund investments generated over that span, suggesting that attempts at going in and out of these funds often lead to underperformance.