I was in Noosa last week for an investment conference. Each morning, I would run along the beach for about 6 km, take a dip in the water, then meditate. It was amazing, I felt amazing - 6:30 am, 20 degrees, blue skies, sunshine.
Last week also marked two weeks leading up to the U.S. election. There are debates going on all around the world about what each candidates' policy means for the economy and for financial markets. The question that is less asked is, does it really matter for financial markets?
Here's the S&P 500's total return for each U.S. president's term back to Roosevelt in 1901.
The chart shows us that 15 of the last 21 presidents have presided over annualised returns of between 10% and 17% (71%), 3 have had single digit returns (14%), and only 3 have seen negative returns during their term (14%). The negative periods were driven by events that were arguably mostly outside of the control of the sitting president, namely The Great Depression, the 1973 oil shock, and the double whammy of the tech-wreck and the early GFC shock of the George W. Bush administration.
I also couldn't help but notice that over the last 125 years, we see positive annual returns for 5 terms, then 1 negative, like clockwork. Since the GFC, we have only seen 3 positive terms- 2 to go? It's probably nothing.
Let's get back on track. Historically, some critics argue that Herbert Hoover’s policies worsened the Great Depression, yet it’s worth considering that the seeds of economic turmoil may have been sown earlier. Under Calvin Coolidge from 1923 to 1929, stock market returns soared to the highest levels seen under any president, likely fostering a speculative bubble that burst with the infamous 1929 crash. By the time Hoover took office, he inherited a challenging legacy that was already underway.
Since 1933, however, most U.S. presidents have enjoyed an era marked by robust U.S. economic growth and annual double-digit equity returns, though there have been a couple of stark and severe exceptions. These downturns, unfortunately, have been more painful than average.
This pattern suggests a case for the old adage that it’s sometimes “better to be lucky than good.” As we look to future presidential terms, major events—rather than policy—may end up being the primary drivers of market performance.
As long as the president doesn't control the sunshine on the coastline of Australian beaches, I think I'll be ok.