Why the Numbers Suggest a Hillary Clinton Presidency Is Best for the Stock Market

By Markets Fool.com

Whether you plan to vote for Hillary Clinton or Donald Trump, history shows that when a Democrat holds the highest office in the land, the Dow Jones Industrial Average (DJIA) benefits.

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Over the past 100 years, the DJIA has delivered average returns of 82.7% under Democratic presidents -- nearly double the 44.8% average it has returned when the GOP holds the White House, according to NASDAQ.com.

Analysts at the respected investment group Bespoke broke down the numbers and found that the answer was clear, Business Insider reported.

"There really shouldn't be any debate; on a historical basis, Democratic presidents are better for the stock market," Bespoke wrote in its year-ahead outlook. "The saying that Republican Presidents are better than Democrats for investors continues to be one of the bigger misconceptions there is in the investment world."

Before you throw your "Make American Great Again" hat to the ground in anger or don a celebratory pantsuit, remember thatpast performance does not guarantee future results -- although in this case, past performance includes a 226.6% gain in the DJIA under Bill Clinton, the second-best gain since the Calvin Coolidge presidency, which ended in 1929.

A second opinion

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"There's a lot of evidence that when we have a Democrat in the White House, unemployment is lower, income is higher, and even the stock market is higher," said Hillary Clinton during an October 2015 speech.

Clinton has been campaigning on the idea that electing her, a Democrat, would be good for the economy. When pressed by FactCheck.org to back up her claim, she cited research by two Princeton economists titled "Presidents and the U.S. Economy: An Econometric Exploration." In the report, authors Alan S. Blinder and Mark W. Watson concluded that the economy has performed "much better when a Democrat is president than when a Republican is," FactCheck.org reported.

After examining a 64-year period beginning with Harry Truman and ending with Barack Obama, the researchers found that annualized stock market returns for firms in the S&P 500 Index were 5.65% higher under Democratic presidents (8.5% under Democrats versus 2.75% under Republicans).

"Though business votes Republican," the authors wrote, "it prospers more under Democrats."

But before Clinton supporters celebrate too much, the report also notes that "given the extreme volatility of stock prices, even differences that large are statistically significant at only the 15% level."

That tempers Clinton's claims a bit, but both authors told FactCheck.org that she was "100% accurate" in her claim that the economy does better under Democratic presidents based on their latest research, which has been peer-reviewed and is set to be published in TheAmerican Economic Review.

What happens with the election cycle?

The biggest challenge facing Clinton or Trump may simply be following a two-term incumbent. Image source: HillaryClinton.com.

In general, elections that don't include an incumbent mean bad news for the stock market. That's because investors don't like uncertainty, and when the leading presidential candidates have not yet proven their economic prowess, uncertainty abounds.

Since 1928, the Standard & Poor's 500 (S&P 500) has dropped an average of 2.8% in presidential election years when no incumbent is seeking re-election, according to Stephen Suttmeier, technical research analyst at B of A Merrill Lynch Global Research. Suttmeier also noted that the the final year of a two-term president's second term -- when the incumbent is a lame duck -- is the only year in the election cycle that averages negative returns.

Once a new president takes office, however, markets historically recover. "On average, the first year of a new presidential term sees the markets rise by 6%, Suttmeier told ML.com. That's still below the 7.5% average for all years dating back to 1928, but it's clear that investors like to see the uncertainty of a presidential election resolved, no matter who the nominee is.

Forget what you think you know

"The general idea that the Republicans are the party of business and the Democrats are the party of labor is actually wide of the mark. If this was ever true, it hasn't been for a long time," George L. Perry, Senior Fellow in Economic Studies, Brookings Institution told ML.com.

Of course, the stock market is not governed by past behavior. Averages and history show that the stock market has done better under a Democratic president, but until recently, averages and past behavior showed with 100% certainty that plus-sized New York Mets pitcher Bartolo Colon would not hit a home run when he came to bat. Of course, one swing in May changed that, and the 42-year-old showed that past behavior is not necessarily indicative of future results. Regardless of what these backward-looking statistics show, long-term investors should not try to time the market or change their investing strategy based on a presidential election.

The article Why the Numbers Suggest a Hillary Clinton Presidency Is Best for the Stock Market originally appeared on Fool.com.

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