As the 2024 US presidential election primary season intensifies, investors across the globe are watching for signs of how a change in administration might affect markets.
The question of whether a Republican or Democratic president would be best for investors is a common theme but Brian Levitt, global market strategist at Invesco, provides a clear-cut perspective on this: “In the US, markets don’t care about elections. Throughout US history, who’s president and which party holds power hasn’t impacted market performance, the economy or the government.”
Below, the strategist offers up seven key points that investors should keep in mind as they consider the potential effects of the 2024 presidential election on their portfolios.
Bipartisan market performance
One of the core observations Levitt makes is the bipartisan nature of markets: the S&P 500 has delivered positive returns under both Democratic and Republican administrations with average annual returns hovering around 10% since its inception in 1957.
This trend persists despite the political party in power, underscoring the market's resilience and indifference to electoral outcomes. “Neither party can claim superior economic or market performance," Levitt noted, highlighting that market dynamics are influenced by a broader set of factors beyond political leadership.
The value of staying invested
The best-performing US portfolio from 1900 to 2023 was a ‘bipartisan’ one, which remained fully invested during both Democratic and Republican administrations, Levitt noted. An initial investment of $10,000 in the bipartisan portfolio would have grown to almost $8.9m over the period in question.
In contrast, the ‘partisan’ portfolio that only invested during administrations of one party or the other in that 123-year time frame would have significantly underperformed. An initial investment of $10,000 across only Democratic administrations grew to approximately $470,000 while the Republican portfolio made less than $181,000.
“The different results are, in part, because of the US stock market’s consistent rise even during two world wars and major financial crises (the Great Depression and the 2008-2009 global financial crisis). The more time investors spent participating in markets, the better their investments did,” the Invesco strategist explained.
Economic consistency over radical change
Investors’ concerns about elected officials radically re-engineering the economy are often unfounded. Levitt pointed out that the composition of the US economy has remained consistent for decades, even during periods of single-party rule.
Meanwhile, the percentage of ‘substantive’ bills passed by Congress does not tend to increase during times when one party controlled the executive and legislative branches, suggesting that fears of drastic economic overhauls following elections may be exaggerated.
Fiscal responsibility across parties
The debate over fiscal responsibility is a contentious issue in political discourse but Levitt said “no party can claim fiscal responsibility”. This is because federal spending has outpaced taxes and other sources of government revenue in most years and across most administrations.
The continuous growth of the US economy and the role of the US dollar as the world's leading reserve currency are factors mitigating the impact of fiscal imbalances, while the fact that interest outlays as a percent of GDP remains below 2% creates “a low bar for growth to surpass.”
Monetary policy matters
According to Levitt, monetary policy plays a more critical role in shaping market conditions than the executive branch's policies.
“The old adage holds true: Don’t fight the Fed,” he said. “Historically, presidents have been hurt or helped by monetary policy conditions.”
For example, presidents Reagan and Clinton benefited from consistently falling interest rates while George H.W. Bush and George W. Bush were hurt by Fed tightening, an inverted yield curve and a recession. Obama was helped by a benign rate environment during his term, while Trump faced tighter policy during his first two years.
Presidential approval and market performance
Levitt's analysis also looked at the relationship between presidential approval ratings and market performance. Contrary to what some might expect, the S&P 500 has historically delivered some of its best returns when the president's approval rating was relatively low.
Levitt said: “Investors don’t have to love what is going on in Washington, DC, to prosper in the markets. In fact, the S&P 500 historically performed the best when the president’s approval rating was in the low range – between 35 and 50.”
Investment opportunities beyond politics
Levitt said investors should care more about what private-sector business leaders are doing in innovative areas such as artificial intelligence, robotics, healthcare, new energy sources and emerging industries, rather than concentrating too much on political news, as this is what will create the investment opportunities of the future.
“History suggests that innovations – and investment opportunities – will continue irrespective of who wins a presidential election,” he finished.
“The period since 2008, for instance, has included Democratic and Republican presidents. Many innovations were introduced during this time including 3D printing, cloud computing, gene editing and virtual meeting software.”