How Would a Biden vs. Trump Rematch Affect Stock Market Performance?
Written by
John Csiszar
Edited by
Gary Dudak
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Although nothing in politics is certain, it appears that the 2024 election may indeed feature a rematch of President Joe Biden and former president Donald Trump. While there is more than a full year until the 2024 election, it’s certainly interesting for strategists, pundits and even mathematicians to consider what might happen during a potential rematch.
For investors, the conversation might focus on how a rematch might affect their portfolios. Here’s a look at how presidential cycles in general have affected the stock market, and how the Trump and Biden stock markets in particular have done in terms of both historic and head-to-head performance.
How Does the Market Perform During the Presidential Cycle?
According to data from U.S. Bank going back more than 90 years, equity performance is typically muted in the year leading up to a presidential election. According to the study, over the long run equities averaged returns of about 8.5% per year, but in an election year, those returns averaged closer to 6.5%.
Part of the reason for this phenomenon is likely that the markets prefer certainty, and leading up to an election, there is usually plenty of uncertainty in the air. This can help keep market returns muted until the next president is declared.
How Did the Stock Market Act Running Up to the 2020 Election?
Contrary to historical averages, the stock market was bullish in a nearly straight line throughout 2020. After a flash bear market in March, thanks to the outbreak of the coronavirus pandemic, the market recovered quickly and went on a tear throughout the year. The S&P 500 ended up with a gain of over 32%, rallying on the day of the election and continuing its gain for the rest of that year.
What Happened After Trump Won in 2016? How About Biden?
From election day in 2016 until the end of 2016 — the year that Trump won the election — the stock market shot up 7.8%. However, in 2020, the year that Biden won the election, the stock market gained 11.4% over the same time period. In both cases, some of the gain was no doubt a relief rally, as the uncertainty of the election was removed.
Looking out further, the Trump stock market from 2016 to 2020 returned 56%, or about 11% per year. That was the best performance under any Republican president since Calvin Coolidge during the 1920s. However, it underperformed the return of the most recent Democratic presidents, Clinton and Obama, who enjoyed average annual returns of 15.95% and 12.1%, respectively.
The books aren’t yet closed on the Biden presidency — and it could be extended for an additional four years after the 2024 election — but some preliminary data is in. For example, the market returned 8.6% in Biden’s first 100 days, the largest gain since 1961. However, returns have been mixed ever since.
The market gained more than 26% in 2021, Biden’s first year in office, but it fell 20% the following year, in 2022. As of May 1, 2023, the S&P 500 was up about 7% year-to-date. Netting it all out and as of early May 2023, the Biden stock market has returned about 8% in total after about 2.5 years.
Does the Stock Market Prefer any Particular Party?
It’s often said that the stock market prefers the Republican Party, as it is seen as more friendly to business interests. However, the long-term data seems to indicate that political party doesn’t actually play a big role in how the stock market performs.
According to information from financial researcher Ned Davis, since 1900, the Dow Jones Industrial Average has returned an average of 3.8% per year under Democrats and 1.1% per year under Republicans, after adjusting for inflation. However, the biggest gains occur when the Republicans control both the White House and Congress, at 7.09% annually, with the next-highest gains occurring with a Democratic president and a Republican-controlled Congress.
The Bottom Line
Political party may have some effect on stock markets, but numerous other factors tend to overwhelm any statistical preference for any particular party. Generally, economic factors are the primary drivers.
When the economy is expanding and corporate earnings are high, the market tends to rally, regardless of which political party is in power. However, it’s also true that the market hates uncertainty, meaning it can be cautious if the winner of a presidential election is in doubt or there is a question about the economic direction of the country as a whole.
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