Policy or Fundamentals: What Drives Markets?

Jeff Buchbinder | Chief Equity Strategist

Last Updated:

Additional content provided by Kent Cullinane, Analyst, Research. 

Following the second inauguration of President Donald Trump, we decided to conduct a deep-dive analysis of stock market performance under different presidential administrations, hoping to glean some insight on if policy outweighs fundamentals. 

With President Joe Biden’s presidency officially closed, we can now see that the stock market, as measured by the Dow Jones Industrial Average (Dow), rose 39.4% under his leadership. When comparing it to Trump’s first term, Biden lagged by nearly 20%, as the Dow gained 57.4% under Trump (we us the Dow for this analysis because of its longer history). While lagging by nearly 20% may sound bad, comparing both Trump’s first term and Biden’s term to President Barack Obama’s, where the Dow increased nearly 150% (albeit through two consecutive terms, rather than Trump and Biden’s one term a piece), shows that, in this small sample size, political party did not meaningfully impact performance. To put those numbers in context, on an annualized basis, the average annualized return was 8.7% under Biden, 12.0% under Trump, and 12.1% under Obama. Considering the average annualized return of the Dow since inception is 5.4%, all three presidencies outperformed, regardless of political party. 

For a more comprehensive review of stock performance by presidency, we’ve calculated the cumulative and annualized returns of the market since inception. 

Biden Adds to Strong Stock Market Performance 
Dow Jones Industrials Performance by President 

Inauguration Day

Last Day in Office

Party

President

Dow Jones Industrial Performance (%)

Annualized (%)

3/4/1897

9/14/1901

Republican

William McKinley

62.7%

11.3%

9/14/1901

3/4/1909

Republican

Theodore Roosevelt

21.6%

2.7%

3/4/1909

3/4/1913

Republican

William Taft

-1.3%

-0.3%

3/4/1913

3/4/1921

Democrat

Woodrow Wilson

-6.9%

-0.9%

3/4/1921

8/2/1923

Republican

Warren G. Harding

17.4%

6.9%

8/2/1923

3/4/1929

Republican

Calvin Coolidge

255.9%

25.5%

3/4/1929

3/4/1933

Republican

Herbert Hoover

-82.8%

-35.6%

3/4/1933

4/12/1945

Democrat

Franklin Roosevelt

194.4%

9.3%

4/12/1945

1/20/1953

Democrat

Harry Truman

81.7%

8.0%

1/20/1953

1/20/1961

Republican

Dwight D. Eisenhower

120.3%

10.4%

1/20/1961

11/22/1963

Democrat

John F. Kennedy

12.2%

4.1%

11/22/1963

1/20/1969

Democrat

Lyndon Johnson

30.9%

5.3%

1/20/1969

8/9/1974

Republican

Richard Nixon

-16.5%

-3.2%

8/9/1974

1/20/1977

Republican

Gerald Ford

23.4%

8.9%

1/20/1977

1/20/1981

Democrat

Jimmy Carter

-0.9%

-0.2%

1/20/1981

1/20/1989

Republican

Ronald Reagan

135.1%

11.3%

1/20/1989

1/20/1993

Republican

George H.W. Bush

45.0%

9.7%

1/20/1993

1/20/2001

Democrat

Bill Clinton

226.6%

15.9%

1/20/2001

1/20/2009

Republican

George W. Bush

-24.9%

-3.5%

1/20/2009

1/20/2017

Democrat

Barack Obama

149.4%

12.1%

1/20/2017

1/20/2021

Republican

Donald Trump

57.3%

12.0%

1/20/2021

1/20/2025

Democrat

Joe Biden

39.4%

8.7%

1/20/2025

 

Republican

Donald Trump

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Source: LPL Research, FactSet 01/21/25 
Disclosures: All indexes are unmanaged and cannot be invested into directly. Past performance is no guarantee of future results. 

Key Takeaways: 

  • The average annual return regardless of political party was 5.4% 
  • Under the 22 presidential terms analyzed, the market was up 16 times (73%) 
    • In an up market, the average annual return was 10.1% 
    • Out of the remaining six down periods, the average annual return was -7.3% 
  • Broken out by Political Party: 
    • Republicans: 
      • The average annual return under a Republican president was 4.3% 
      • The market was up in nine out of the 13 periods 
        • The average annual return in an up market was 11.0% 
        • In the remaining four down periods, the average annual return was –10.7% 
    • Democrats: 
      • The average annual return under a Democratic president was 6.9% 
      • The market was up in seven out of the 9 periods 
        • The average annual return in an up market was 9.1% 
        • In the remaining two down periods, the average annual return was –0.6% 

While it’s interesting to analyze how the market has performed under different political parties, it’s worth noting that regardless of party, the markets have averaged a positive annual return in 16 of the 22 administrations, or roughly three-quarters of the time.  

Political policies under different administrations and political affiliations can certainly influence stock market performance, but their impact is often more indirect and short-term compared to long-term fundamental drivers, such as corporate earnings and economic growth. For example, a new administration might introduce policies that are perceived as pro-business, which could boost investor sentiment and underpin a market rally. Conversely, policies that may increase regulation or taxes might have a negative impact on stock prices.  

While it’s hard to keep political biases out of investment decisions, it has proven more fruitful to be fully invested regardless of the political party in office. Both parties have seen the market rise under their administration more times than not, and a prudent investor understands that staying the course and harnessing the power of compound returns, while not missing out on potential growth opportunities by being too cute with market timing, can lead to significant wealth accumulation over the long term. 

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Jeff Buchbinder

Jeff Buchbinder, CFA, provides the top-down view of the stock market for LPL Financial Research. He has over 25 years of experience in equities.