Fisher Investments Reviews How US Politics Impact the Stock Market

Political Illustration

Fisher Investments Market Perspectives

By Fisher Investments — 8/17/2023

Note: Fisher Investments is politically agnostic. We prefer no politician nor any political party in any country, and we assess developments for their potential economic and market impact only.

As Fisher Investments’ founder, Executive Chairman and Co-Chief Investment Officer, Ken Fisher, shared in his recent video—Fisher Investments’ Ken Fisher Provides His Market Outlook for the Rest of 2023—a key driver of the growth we’ve seen in markets since October 2022 can be attributed to the current US political environment. While other fundamental drivers—like global economic growth, an expected earnings recovery and investor skepticism—lead us to believe the trajectory for markets should remain positive, in this article, we’ll take a deeper look into how the state of US politics should continue to be a tailwind for markets.

Stock Returns and US Presidents

It’s natural for investors’ personal political beliefs to influence their views on how politics may impact markets. Republicans likely believe the stock market is in better shape when their party is in office. Conversely, Democrats likely believe the same is true for their party. However, historical stock market data show that neither party is inherently better (or worse) for stocks. Over the long-term, stocks have risen regardless of which party controls the presidency.

From January 1925 through December 2022, US stocks’ average annualized return has been 15.2% under Democratic presidents and 9.0% under Republican presidents—nicely positive for both. What difference there is between these average returns appears largely due to economic and market factors outside any president’s control.

The Midterm Miracle

The Midterm Miracle refers to US stocks’ tendency to rise amid and after midterm elections. Midterms often result in increased political gridlock—2022 included—giving stocks the legislative stability they love. The following chart shows average US stock returns (gold line) starting in midterm year fourth quarters alongside current cycle returns (dark green line).

As you can see, US stocks rose 7.6% in Q4 2022, 7.5% in Q1 2023 and 6.2% in Q2 2023—continuing this long history of post-midterm positivity.

Looking Beyond the Midterm Miracle

In our view, US political gridlock should remain a tailwind for stocks in 2023’s second half—and into 2024. The second halves of presidential term third years aren’t as consistently positive or strong as the first halves, but gains tend to continue, as you can see in the chart below.

Overall, stock market returns during the last two years of US presidential terms are quite positive. The third year of a president’s term (as 2023 is) historically has the highest frequency of positive returns (91.7%) and strongest average return (18.4%) of the four-year cycle. Then, the fourth year (as 2024 will be) is up 83.3% of the time with an average 11.4% return.

For more market insights from Fisher Investments, read our latest articles.

Investing in securities involves a risk of loss. Past performance is never a guarantee of future returns. Investing in foreign stock markets involves additional risks, such as the risk of currency fluctuations. The foregoing constitutes the general views of Fisher Investments and should not be regarded as personalized investment advice. Nothing herein is intended to be a recommendation. The opinions expressed are subject to change without notice.

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