Party in Power and Stock Returns



Party in Power and Stock Returns – CXO Advisory



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Posted in: Equity Premium, political indicators

Past analysis relating US inventory market returns to the get together holding the Presidency largely concludes that Democratic presidents are higher for the inventory market than Republican presidents. However, Presidents share energy conferred by the voters with Congress. Does historic knowledge affirm that Democratic management of Congress can be higher for inventory market returns than Republican management of Congress? Is management of the smaller Senate extra decisive than management of the House of Representatives? To test, we relate annual US inventory market (S&P 500 Index) returns to numerous mixtures of get together management of the Presidency, the Senate and the House of Representatives. utilizing party in power data and annual levels of the S&P 500 Index for December 1927 by means of December 2023 (96 years), we discover that:

There are two years (1931–1932) for which the House of Representatives has equal numbers of Republicans and Democrats. We exclude House-related energy mixtures for these two years. We do assign the 2021 and 2022 Senates to the Democrats primarily based on the Vice President’s tie-breaker vote.

The following chart summarizes common calendar yr S&P 500 Index returns for numerous mixtures of get together in energy over the complete pattern interval. The quantity in parentheses after every mixture is the variety of years throughout which the mixture holds. Some subsamples are extraordinarily small. Results recommend that shares do higher when Democrats (Republicans) management the Presidency (House, Senate or each).

Using “election yr” (November by means of October) returns slightly than calendar yr returns makes little distinction.

In abstract, proof means that divided authorities, with a Democrat as President and Republican management of half or all of Congress is essentially the most favorable for US shares.

Cautions relating to findings embrace:

  • As famous, subsamples are too small for dependable inference.
  • The margins of energy within the Senate and House of Representatives could also be elements, however the small pattern/subsample sizes argue towards additional stratification.

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Party in Power and Stock Returns


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