From the October 2004 issue of Investment Advisor • Subscribe!

October 1, 2004

Who's Better-- Democrats or Republicans?

Despite the latest polls and up-to-the-minute spin doctoring, we don't know who is going to win the majority of electoral votes on November 2. But do we have a clue as to how the economy and the markets will perform under a Bush or Kerry Administration? Over the short term, many observers note that just getting the election over will be good news for the financial markets, which abhor nothing so much as the vacuum of uncertainty. But the real question on the minds of most investors is simple: Which candidate would be better for my portfolio?

The knee-jerk reaction assumes that a Republican Administration, particularly if the GOP also controls both houses of Congress, is always better for the economy and the markets and, thus, for investors. A close look at the actual economic figures for the last 60 years, however, indicates that the common assumption may be wrong.

According to research by Standard & Poor's published on the Investment Advisor Web site's Mutual Fund Center, the S&P 500 posted an annualized increase of 10.7% in the years that Truman, Kennedy, Johnson, Carter, and Clinton moved into the White House. The annualized gains for the years immediately following the elections of Eisenhower, Nixon, Reagan, and the Bushes were only 7.6%.

The same data indicates that the power of the incumbent also carries into the stock market, which only serves to complicate the picture in 2004. In the year following the last 14 Presidential elections when the incumbent was reelected, the S&P 500 increased an average 12.9%. On the other hand, in those years when the sitting President went down in defeat, the index declined an average of 3.2%.

As with all such matters, the interpretation of such post-election data is contentious. S& P's research also showed that since 1899, two out of three recessions have begun under Republicans. In response to a news item on the S&P findings published on the IA Web site, Rusty Ballard, president of Ballard Wealth Management in Waxahachie, Texas, and chairman of the Republican Party of Ellis County, Texas, argues that because it takes several years for Presidential actions to show an effect on the markets and the economy, the positive economic performance under Democratic Presidents is actually due to policies implemented under previous Republican administrations. "While the Democrats are changing economic policy that's less favorable to a growing economy," says Ballard, "they still receive the benefits set in motion by the Republicans."

-Robert F. Keane

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