Politics and Investing

Investing and Politics

Everyone has some political views or biases. Whether it’s Republican, Democratic, Independent or Libertarian, each one comes with their own set of lenses that someone sees the world through. That bleeds into the investment world too.

I started my career in South Central, Pennsylvania. A large amount of my client base in that region would definitely consider themselves politically conservative. I also have a significant number of clients that would definitely NOT consider themselves politically conservative. So, I hear both sides of the fence on their views and how they feel politically can affect their investment psychology.

Political Bias in Investing

This blog is not a political blog. I’m not saying one side is right and another is wrong. The Client Focused Financial Blog aims to give you the facts that prove how little politics affect the investment world.

Here’s one example of a political bias and investing I have heard countless times. Many on the conservative side of the fence would say that Donald Trump was better for the stock market than Barrack Obama. The chart below shows different. Trump is red dotted, Obama is green dotted and Biden is solid blue. This chart is the S&P 500 over the length of their respective presidency.

Investments and Political Views

Political media outlets often just take a look at politics and investing through one lens. This chart above might make many Obama supporters think he was better for the stock market than Trump. The fact is the return was higher. However, was it really his policies that helped stocks go higher or was it just great timing of when he took office?

The graph below tells a better story. March 2009 was the low in the Great Financial Crisis, just 2 months after Obama took office. Market forces were the reason that stocks turned around, not the president. This is a pattern repeated over and over again.

S&P 500 Index

The Stock Market and Politics

The return of stocks has more to do with larger shifts or events happening over the last 100 years. The chart below shows stock returns going back to the beginning of the Great Depression with Herbert Hoover. You can see that most of the presidencies fall close to the average, with only a handful of outliers. If we look closer, it was less about the president and more about the events that occurred during the time period.

President’s Affects on Stock Returns

• George W. Bush

  George W. Bush had the second worst presidency, when it comes to stock returns for both of his 4-year terms. So, what happened? In 2001, we entered a recession shortly after the 9/11 attacks, which caused stocks to continue dropping as the tech bubble of the 1990s deflated. Then the Great Financial Crisis happened starting with housing collapsing in 2007 and continued with major financial institutions going bankrupt in 2008. This lead to the bottom of the market in March 2009.

• Richard Nixon

  Richard Nixon had 2 recessions during his second presidency caused by extreme inflation at the time.

• Theodore Roosevelt

  Theodore Roosevelt’s first term in office was great as stocks initially rebounded dramatically after the massive market drop in the beginning of the Great Depression. His second term, though, was during the start of WWII (not ideal for stock returns)

• Herbert Hoover

  Herbert Hoover had the unlucky timing of taking office right when the Great Depression started which was as extreme of a drop in stocks largely due to over leveraging and lack of regulation in markets throughout the 1920s.

Stock Market Drops Affecting Politics

Arguably, all of those presidents could not have done much to stop the events from happening and stock market drops. They were a product of their timing. Bring that forward to present day. According to Gallup Polls, President Biden’s current approval rating is 44% overall. However, that has dramatically gone down from day one, across the board, regardless of party lines.

Approval Ratings and Stocks

Does this approval rating have anything to do with the lack of returns in stocks since the beginning of 2021? The data would say yes. Stocks peaked at the end of 2021 right when Biden’s approval rating really started to drop off and only recently went up. This is likely due to a big increase in stocks from the most recent market lows in mid-June, along with inflation likely peaking – at least in the short-term.

Political Affects on Investment Decisions

The summary of the story is: don’t let politics affect investment decisions. The bigger economic and world events are what matters, not if Republicans take the House and Senate in the midterms. The best investment strategy is to take a long-term approach and use other investors blinded political ignorance to make more money for you and your family. Like the chart above shows, it’s better to stay invested than try to time the stock market. Or, even worse, let your political beliefs affect investment decisions.