On November 6, 2012, registered voters will have the privilege of heading to the polls and cast their ballots for President, members of Congress and a whole host of local candidates. The citizens of the United States will elect its representatives to lead our Nation through challenging economic and political times.
Individual candidates aside, which political party should you vote for if wanted robust economic growth and higher stock markets? The answer may surprise you.
The two dominant political parties in the United States are the Democrat and Republican parties. It is difficult to define the complex ideology of the present day political parties and the followers that comprise them yet alone recalling ideology of decades past. Let us start with a “who we are” from the Democratic and Republican National Committee websites:
Democratic: Our party was founded on the conviction that wealth and privilege shouldn’t be an entitlement to rule and the belief that the values of hardworking families are the values that should guide us.¹
Republican: The Republican Party is inspired by the power and ingenuity of the individual to succeed through hard work, family support and self-discipline.²
My further refinement of their respective ideologies: Democrats believe in a more equal society where Government plays a larger role and Republicans believe more in an entrepreneurial society and less Government.
Which political party, Republican or Democrats, when in control of the White House, has the highest stock market returns over the last 111 years? The Dow Jones Industrial Average (DJIA) has increased 7.79% during years when there has been a Democrat as President. This is more than double the performance of a Republican Presidency which increased 2.95% over the same period. Not what many would expect.
This appears to be completely counterintuitive given the differences between both parties’ ideologies. What can be learned from the enclosed chart when looking at political party control for both White House and Congress and its historic impact on the stock market, economy and inflation?
Stocks (DJIA) Industrial Production Inflation (CPI)
Democratic President 7.79 5.27 4.46
Republican President 2.95 1.81 1.80
Democratic Congress 6.05 4.49 4.37
Republican Congress 3.57 1.45 0.65
Dem. Pres., Dem. Cong. 7.33 6.31 4.62
Dem. Pres., Rep. Cong. 9.63 1.11 3.79
Rep. Pres., Rep. Cong. 1.62 1.57 -0.37
Rep. Pres., Dem. Cong 4.92 2.04 4.01
Table courtesy of Ned Davis Research, Inc.
If you are a stock market investor, you would welcome the very specific scenario of a Democratic President and a Republican controlled Congress. This combination would have resulted in a very satisfying 9.63% average gain for the DJIA.
What is the worst scenario historically for investors? This would have been during complete Republican control of both the White House and Congress. During this time, the DJIA was up only 1.62% on average, the worst performing period of any political party combination. Given the Republicans rooted fundamentals in business, entrepreneurship and small Government, this is a surprising outcome. Industrial Production, which measures output from factories, mines and utilities, also languished under complete Republican control with its second worst result of 1.57% growth.
How did stocks and the economy fare when Democrats completely controlled the White House and Congress? The DJIA had its second best result with an average gain of 7.33% while Industrial Production performed at a chart toping 6.31% growth rate. But, this scenario also produced the highest rate of inflation with the Consumer Price Index (CPI) surging 4.62% over that period. Good gains for stocks and the economy but tempered by higher rates of inflation.
Regardless of political ideology, history shows us that conflict may be the best scenario for investors. When the White House has been in Democratic control and Congress in the Republican’s hands, stock market investors have fared best.
Should you prefer gains in Industrial Production, you hope for a Democratic sweep of power. Low inflation rates, you would welcome a Republican President and control of Congress.
Who is Better? It all depends. Candidates, political parties and special interest groups are projected to spend billions of dollars persuading voters to punch a ballot in favor of their platform and candidate. They will use statistics, polls and a variety of other numbers to either taint the opposition or bolster their own standing. British politician Benjamin Disraeli stated “There are three types of lies — lies, damn lies and statistics.” Don’t be easily swayed by highlighted numbers. Dig deeper into the stated arguments and underlying statistics to better understand what you are being led to believe. Most important, on November 6, go vote.
Edward Gjertsen II, CFP®
Mack Investment Securities, Inc.