How Much Influence Does Any President Have On The Stock Market?

 

“Trump’s win is going to send the market into a tailspin! His policies will send us back to the economy we had when Bush was in office!”

“Ah, people were saying that the sky was falling after ‘Brexit’ and that didn’t happen. The market will be fine. It may even flourish based on what we’ve seen so far.”

Who do you believe? Should you start making moves to your portfolio now that the unexpected has happened? How volatile does the market become from here?

If you’re confused, frustrated or in panic mode, you’re not alone. Investors of all varieties are asking the very same questions after the shocking victory of Donald Trump to become our President-elect. It doesn’t become any clearer the more opinions you hear from pundits and prognosticators on whether or not President-elect Trump’s tenure in the White House will be successful. That includes the impact his potential moves will have on the economy.

You don’t need the stress. All those talking heads are offering you is a lot of guesswork on the future that’s not helping you sleep at night. You’ve already had enough of that prediction game from pollsters who were certain that Hillary Clinton would win the Oval Office (and how’d that work out for them)?

However, if we look to the past for answers, we can get a lot more perspective that might calm your nerves as you plan ahead.

So at Fiduciary Financial Partners, we thought we’d ask what we hope is a more useful question to answer to investors: To what degree can a President really influence stock market activity up or down?

In this case, we can at least point to evidence for a clearer answer based on what we see from past market performance against decades of presidencies.

The Market Is Non-Partisan

What you’ll see below is a chart that shows the growth of one dollar invested in the S&P 500 Index over nine decades and every President from Coolidge to Obama.

presidentialchart

Source: Standard & Poor’s Index Services Group. Past performance is not a guarantee of future results. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio.

See a clear pattern of the market performing better during the term of one President or another? Neither do we. There’s no substantial proof that the market does substantially better as a direct link to a Democratic or Republican President being in the White House.

Is this to say that the President has zero impact on the U.S. economy?
Not quite.

We know that there’s another key individual who helps shape monetary policy – the chair of the Federal Reserve (currently held by Janet Yellen). That person is appointed by the President as well as members of the Fed’s board of governors. Now, in many cases, the Fed’s moves on interest rates could be consistent regardless of whether the chair and board was appointed by a Democrat or Republican President. However, we have seen instances in which certain types of chairs and boards on the Fed will be more aggressive than others, which may reflect the President’s economic philosophy. This becomes more apparent when the economy is in recession and less so when it’s on a fairly steady course.

We also know that it’s generally easier for a President to move an economic agenda forward if the same party controls the Senate and House of Congress, which after our recent elections holds true. President-elect Trump may not be able to do everything independently “on Day 1” as he claims, but he could certainly influence the degree of tax cuts (and for whom) and cuts to various government programs.

So, yes, the President of the United States has a hand in economic policy. In a follow-up post, we’ll take a closer look at how much volatility can occur in the immediate days after a President takes office, including whether the first 100 days of President-elect Trump’s is likely to be a rocky road or a smooth one for investors.

 

Fiduciary Financial Partners, LLC is a Registered Investment Adviser. This blog is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Fiduciary Financial Partners, LLC and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Fiduciary Financial Partners, LLC unless a client service agreement is in place. 

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