With the run-off elections in Georgia behind us and Joe Biden’s presidential inauguration completed; investors are left wondering what the impact will be on financial markets in the new environment of Democratic control of the federal government.

Before delving into prospective future scenarios, we will share some historical data to serve as a point of reference. A comparison of the performance of the Standard & Poor’s 500 Index (S&P 500) performance based on the political affiliation of the president reveals that returns have been higher when a Democrat is in the White House. Since 1932 the S&P 500 has generated an annual price performance of 10.4% during Democratic administrations. This compares to a return of 6.6% for the periods when a Republican was occupying the Oval Office. If you break the time period into those when the market advanced and when the market declined, the S&P 500 had a better return under both scenarios with a Democratic president at the helm. In reviewing the first year of a new Democratic presidential administration the return for the S&P 500 has been 19.4%. The other years of a first-term Democratic President have been positive as well historically except for the second year which has seen a return of -0.4%. When reviewing stock market performance when a Democratic president is accompanied by a Democratic-controlled Congress the result, once again going back to 1932, has been an annualized S&P 500 return of 9.3%.

The purpose of sharing the data above is not to imply the equity markets will replicate the returns that occurred during prior Democratic administrations. Instead, we provide it to illustrate that through time, periods with a Democratic president, even when combined with a Democratically controlled Congress, have historically been associated with meaningful, positive equity market performance. It is not meant to imply this type of performance will be realized throughout the duration of the current administration.

As the new administration begins to settle in it faces a continuation of the coronavirus challenges that began under the prior administration. New variant strains of the virus along with logistical challenges in distributing vaccines throughout the country are among the issues to be resolved. In response to these issues an additional round of fiscal stimulus is being proposed and monetary officials continue their commitment to maintain policy that helps keep the economy moving forward. We maintain that, despite this current backdrop, the U.S. economy will experience growth in 2021 as numerous indicators continue to illustrate positive underlying momentum. As for the markets, we will be continuously monitoring their movements in an ongoing effort to ensure we are positioning client portfolios in the most appropriate manner to help them achieve their investment goals.

Source: BTC Capital Management, Bloomberg LP, Ibbotson Associates, FactSet.
The information provided has been obtained from sources deemed reliable, but BTC Capital Management and its affiliates cannot guarantee accuracy. Past performance is not a guarantee of future returns. Performance over periods exceeding 12 months has been annualized.

The information within this document is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Statements in this report are based on the views of BTC Capital Management and on information available at the time this report was prepared. Rates are subject to change based on market and/or other conditions without notice. This commentary contains no investment recommendations and you should not interpret the statement in this report as investment, tax, legal, and/or financial planning advice. All investments involve risk, including the possible loss of principal. Investments are not FDIC insured and may lose value. 

Jon Augustine, CFA, Chief Investment Officer

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