Check Your Politics at the Door

Check Your Politics at the Door

January 25, 2021

Old Peak Finance - Check Your Politics at the Door

Check Your Politics at the Door

January 25, 2021

The stock market is neither red nor blue.

In our highly partisan country, red vs blue colors everything -- including views on investing.

Over the past few years, I have seen that with a number of our clients. Those who lean left were reluctant to invest with Trump in office. Those who lean right were just as reluctant with Obama in office.

People often believe that, when their side controls the White House or Congress, it's time to buy stocks ... and when they are out of power, it's time to sell.

Here's the surprise: red and blue are both right about their side. And they are both wrong about the other side.

The facts: over the last century, the market has typically risen regardless of who is in power. There is no evidence that the market does better under either party.

The chart above, provided by Dimensional Fund Advisors, illustrates the point. It shows the performance of the S&P 500 index (tracking the 500 largest US stocks) from 1926 to 2019, and which party controlled Congress. The fine lines represent a split of power. The trend is clear: red, blue or split, the market, on average, advances.

And how about the White House? Same thing. For example, since 1968, the US stock market did best under a Republican (Gerald Ford -- bet you did not guess that) and worst under a Republican (George W Bush). The market advanced under every president except Nixon and the younger Bush.

Thousands of factors influence stock prices. Politics is just one. Here are just a few others in the last 50 years: the Arab oil embargo, 1970s inflation, the burgeoning of software and the chip industry, the dot com bubble, the internet, 9/11, the great recession and housing crisis, COVID-19, Japan's meteoric rise and its stock market's subsequent collapse, creation of the Euro, China's rise, Brexit ... the list is endless.

When making investing decisions, check your politics at the door. You'll be happy you did.


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