By NEAL MCGRATH
Nov. 2, 2022
Given the huge difference in U.S. fiscal policy that the political party in charge can make, one might think the party that controls the White House and Congress would have a huge impact on equities markets.
- The two main U.S. political parties have very different approaches to fiscal policy, which should influence equities markets.
- Investopedia examined results of elections over recent decades to look for patterns in how markets react to elections in various scenarios.
- We looked at how markets react when the president, the House of Representatives and the Senate are all controlled by the same party, and how markets react when power is divided.
- Essentially, the president and the party in power seem to have a negligible impact on the direction of the U.S. stock market.
To find out what impact the party in charge has on U.S. equities markets, Investopedia looked at elections over the years to see what patterns could be identified, examining the effect of the president’s party on the market, and the effect on the market of the U.S. president enjoying the support of Congress by having his party also control both the House of Representatives and the Senate. We also looked at what happens when one house of the U.S. Congress is controlled by the president’s party while the other is not (a split Congress).
In short, our findings seem to suggest that the party running the country makes no clear difference for U.S. equities markets.
How We Assessed Elections’ Market Impact
To assess the market impact of U.S. elections, we looked at the Dow Jones Industrial Average (DJIA). We checked its level at the start of October (before a November election) and again at the end of March the following year. The timing was to assess long enough before the election that the outcome was still uncertain, and then again after the president has been sworn in (if one was elected) in January and after the new congressional session has started, as by then, new policies would largely be known.
We looked to see what effect, if any, the party in control has over the market, if that influence differs if Congress is completely controlled by one party or the other, and what happens if there is a split Congress.
First, we found political control in recent years has become more divided. In the 60 congressional sessions since 1900, just over half (34) represented unified governments, meaning that the same party controlled the White House, the U.S. Senate, and the U.S. House of Representatives. However, since 1980, only six of the 21 sessions of Congress have been a unified government in terms of party control.1
Unified Control: Presidency and Congress Held by Same Party
Periods of unified political-party control have become less common in recent decades, so there are fewer examples on which to draw.
Most recently, in 2016, Republican candidate Donald Trump was elected president and enjoyed a Congress controlled by his Republican Party.1 In early October 2016, a little more than one month before the election, the DJIA was at around 18,250. It then climbed about 10% to over 20,000 by the end of March 2017.
Conversely, on the prior occasion that there was unified control, the market fell—in 2008, when Democrat Barack Obama was elected president and similarly enjoyed the support of a Congress also controlled by Democrats. In early October 2008, the DJIA was around 10,800, but by the end of March 2009, it had fallen 26% to below 8,000.2
However, it should be noted that 2008 was the culmination of the subprime lending crisis and the start of the global financial crisis, so it’s not clear if the downward market movement was driven as much by politics as it was by economics.
On the prior occasion that there was a unified government—in 1992, when Democrat Bill Clinton was elected—the DJIA climbed about 5% from around 3,200 in October 1992 to 3,450 by the end of March 1993.2
Based on data gathered from recent decades, it seems the stock market reacts well to a unified U.S. government, with the exception of 2008, the start of the global financial crisis.
Democratic President, Congress Controlled by Republicans
The last time a Democratic president was in the White House while Congress was controlled by Republicans was in 2014, in the middle of President Obama’s second term. The DJIA was at around 17,000 points in early October, then climbed above 18,000 by the end of March 2015.
The time prior to that was in 1996, in the middle of President Clinton’s second term in office. The DJIA was at around 5,900 in early October 1996 before the election, but subsequently climbed to over 7,000 by mid-March 1997 after Republicans took control of Congress. (It subsequently shed 500 points to end the month at around 6,500.)2
Based on this, it appears that the market also reacts well to a Democratic president balanced by a Republican-controlled Congress.
Democratic President, Split Congress
Prior to losing control of Congress to Republicans in 2014, the general election (one in which both congressional seats and the presidency are up for election) of 2012 delivered a Democratic president (Obama) and a split Congress.1
When that happened, the stock markets also climbed. In early October 2012, the DJIA was around 13,500, but it then inched up around 7% to 14,500 by the end of March 2013.
Obama also had a split Congress following the 2010 elections, at which time the DJIA climbed about 14%—from around 10,800 in October 2010 to just over 12,300 by the end of March the following year.
Using this historical information, it appears that the market reacts well to a Democratic president, even if control of Congress is split.
Republican President, Congress Controlled by Democrats
Looking at what happens when Republicans are elected president, we find a similar pattern. As mentioned above, the DJIA climbed about 10% after Trump was elected in 2016.
However, markets have also reacted well to Republican presidents even if Democrats control Congress. In 2006, in the middle of Republican President George W. Bush’s second term, the DJIA climbed about 6.5% from around 11,700 in October 2006 to around 12,500 by the end of March 2007 after Democrats took control of Congress.2
Similarly, in 1990, when Republican George H.W. Bush was elected president but Congress became controlled by Democrats, the DJIA climbed about 16% from around 2,500 to about 2,900 in March 1991.31
Based on this data, it seems the market reacts well to a Republican president balanced by a Congress controlled by Democrats.
Republican President, Split Congress
The most recent example of a Republican president presiding over a split Congress was in 2018, in the middle of President Trump’s only term.1 The DJIA fell around 7% from around 27,000 to around 25,000.
To find another example, we have to look back to 1984, at the start of Republican President Ronald Reagan’s second term in office. At that time, Democrats controlled the House of Representatives while Republicans controlled the Senate.1 In October 1984 before the election, the DJIA was at around 1,100, and it climbed around 14% to 1,260 by March 1985.4
Does the election of a president affect stock prices?
While it seems that the usually divergent fiscal policies of the two main U.S. political parties should impact financial markets, depending upon who wins an election, the data seems to suggest that the party running the country makes no clear difference in U.S. equities markets.
How do U.S. stock markets react to a unified-party U.S. government?
Based on historical data, the stock market, using the Dow Jones Industrial Average (DJIA) as a proxy, often reacts well to a unified government, with the exception of 2008, the start of the global financial crisis.
Do stock markets go down when a Republican president is paired with a Democratic Congress?
Based on our research, it appears that the U.S. stock market (via the DJIA) looks positively on a Republican president balanced by a Congress controlled by Democrats.
The Bottom Line
While it seems that the often drastically different fiscal policies of the two main U.S. political parties should influence markets depending upon who is in charge, the data seems to suggest that the party running the country makes no clear difference in U.S. equities markets.
Further, it seems that even if Congress is controlled by another party (which makes it more difficult for a president to pursue his agenda), equities markets react similarly. The data that we examined shows no clear pattern of market direction being affected by the party in power, regardless of whether the president also has support of Congress.
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
- U.S. House of Representatives, History, Art & Archives. “Party Government Since 1857.”
- Yahoo! Finance. “Dow Jones Industrial Average.”
- The Wall Street Journal. “Dow Jones Industrial Average: Historical Prices, Nov. 1, 1990–Dec. 31, 1991.” (Set time frame, then download spreadsheet.)
- The Wall Street Journal. “Dow Jones Industrial Average: Historical Prices, Oct. 1, 1984–Dec. 31, 1985.” (Set time frame, then download spreadsheet.)