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  • Writer's pictureNicholas Pihl

What does the president mean for the market?

Updated: Jan 4

If you're like me, you're thinking, "an election year? Already? Didn't we just have one of those?"


Maybe it comes from living so long in hyper-political Portland, but I dread the thought of another election. I'm just too tired for it. I'm tired of ads telling me I'm supposed to care harder than ever before. I'm tired of politics cropping up in normal conversation, and I'm tired of the alienation that results.


You may not want to hear this, but the reality is that elections just don't matter as much as people think it does, particularly for the stock market. Following election day, a few people will change jobs, but 330 million other Americans will keep doing the same thing they've always done. Thank God, too, because that's what makes society work.


Look at the graphic below, and notice how it rises and falls during red and blue periods alike. That's not because of one guy's job, it's because markets are influenced by about a billion factors (I'm not exaggerating) other than who the president is.


Yes, it's volatile, but notice this one important thing: it mostly goes up over time. It starts down in the lower left corner of this picture, and ascends to the upper right. Yes, it has decades where it's flat or down, but you don't get to the upper right without a strong upward bias.

https://my.dimensional.com/one-pagers/what-history-tells-us-about-us-presidential-elections-and-the-market





That chart is also an illustration of why it is dangerous to invest (or not invest) based on your political beliefs.


As a fun hypothetical, let's say you were the world's biggest Jimmy Carter fan. After 8 years of mediocre stock returns under Nixon and Ford, you might have pointed to Carter's rebounding stock market as proof of Carter's greatness as a president. Then Reagan gets elected, and you're like, "screw this guy, he's going to crash my portfolio," so you sell everything. Well, you'd be right for a little while, but then miss out on absolutely massive gains over the next 8 years.


Or conversely, let's say you're an ardent Republican, and after seeing such large gains under Reagan and Bush Sr. you decide that this Bill Clinton guy is bad news. Well, the 90s were a pretty phenomenal decade for stocks and you'd have missed out on that.


Worse, if you'd gotten back in after the next Republican, George W. got elected, you'd have had a terrible decade in stocks. Unlucky George W Bush took office at the end of a historically massive tech bubble, and his term ran out at the bottom of the Great Recession.


Obama? Stocks went up. Trump? Stocks went up. Biden? Stocks went up. JFK and LBJ? Stocks went up. Eisenhower, Truman, FDR? Stocks went up for each of them. Hoover? Well, in Hoover's case stocks went down. He had kind of a George W situation, where he took over a massive bubble headed into severe recession (The Great Depression, in fact). Nixon, for whom stocks were roughly flat, also took over a bubble (The Nifty 50), although his successor Ford saw stocks go up during his brief term.


The takeaway here is that it's not half so much about who the president as it is about the market environment they inherit. The only presidencies with negative stock market returns started with severely overvalued markets.


The lesson here is that we should be paying far closer attention to our portfolios than to election results, because for a portfolio of reasonably valued, high quality stocks, the result is usually up and to the right. Especially over the long term.


That especially makes sense if you look at how progress happens in your day to day life. If you're doing all the right things, the result is usually pretty good, regardless of who is in office. Embrace that personal power and have a great life. And this year, I beseech you, turn off the news and enjoy your finite time on this beautiful earth.


I wish you peace and sanity in the year ahead.


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