Democratic Or Republican: Which President Is Better For The Financial Markets?

With less than a year until the 2016 presidential elections, investors are looking on nervously at the Republican and Democratic primaries for clues about who might become the next leader of the world’s largest economy. The uncertainty surrounding next year’s election extends beyond just the political sphere and into the economy and financial markets. This has many traders asking, which party is better for the stock market?

Democratic and Republican Primaries

Before we look at the historical data to determine whether the stock market performs better under a Democratic or Republican president, a quick recap of the presidential primaries is in order.

For the ruling Democrats, a clear two-horse race has emerged between Hillary Clinton and Bernie Sanders. According to the latest Rasmussen Reports national telephone survey, 46% of Likely Democratic Voters would vote for Clinton. While still a distant second at 30%, Bernie Sanders has advanced in the polls over the past five weeks. Based on an average of ten separate polls, Clinton holds a 24.3 percentage point lead over Sanders, according to Real Clear Politics.[2]

For the Republicans, real estate mogul Donald Trump continues to lead with 39% support, more than twice that of Texas Senator Ted Cruz.[3] Trump enjoys a strong lead in eight separate polls with average support of 35.1% among Likely Republican Voters, according to Real Clear Politics. Florida Senator Marco Rubio and retired neurosurgeon Ben Carson are a distant third and fourth, respectively.[4]

Markets may Perform Better under Democrats

Contrary to some expectations, stock market returns are higher under Democrats than Republicans with the average annual return under Democratic presidents since 1900 being 15.31%, compared with just 5.43% under Republicans. The average monthly return under Democrats was 0.73% versus 0.38% for Republicans. This comes despite Republicans spending more time in office over the 112-year period (734 months versus 617 months for Democrats).[5]