The S&P 500 performed exceptionally well during Donald Trump’s last presidency, but the future looks bright for investors regardless of who wins the election.
We are six months from the 2024 presidential election. Neither political party has selected an official candidate, nor will they until hosting their national conventions this summer. But Donald Trump and Joe Biden have secured enough delegates to win the nominations.
To that point, history says the S&P 500 (^GSPC 1.26%) could soar if Donald Trump is elected president in November. However, before I discuss the stock market’s historical performance, I want to make something clear. The stock market and the economy are impacted to varying degrees by presidential policies and appointments, but neither one is controlled by a single individual.
To that end, investing (or not investing) because a specific political party controls the White House would be a mistake. Analysts at Goldman Sachs recently shared the following insight:
Regardless of who the next president is, we uphold our view that equity prices will continue to be driven by macro fundamentals. Since 1953, investing in the S&P 500 only during Republican or Democratic presidencies would have resulted in major shortfalls versus investing in the index regardless of the political party in power.
With that in mind, here’s what happened last time Donald Trump was president.
History says the stock market could soar during a Donald Trump presidency
The S&P 500 is the most popular benchmark for the overall U.S. stock market. The index tracks 500 large-cap U.S. companies from all 11 market sectors, and it covers more than 80% of domestic equities by market capitalization. Its precursor index was developed in the 1920s, but the S&P 500 itself was not introduced until March 1957.
With that in mind, the chart below details the S&P 500’s annual return, also known as the compound annual growth rate (CAGR), during each presidency since March 1957. In most cases, the presidential terms started and ended in mid-January of the year listed, but there are certain exceptions. For instance, Gerald Ford took office in August 1974 after Richard Nixon resigned.
The S&P 500 was created in March 1957. The chart above shows the index’s annual return during each presidency since its inception.
As shown above, the S&P 500 returned 14.1% annually during the four-year period when Donald Trump was last president. That exceeds its annual return of 8.7% under Joe Biden. Of course, that comparison is not quite fair because Biden has not completed his term. But the S&P 500 would need to advance 28% by mid-January (the end of Biden’s first term) to make up the difference.
Interestingly, the S&P 500 performed better under Donald Trump than any other Republican president in hisotry. In fact, only one president, Democrat Bill Clinton, presided during a time when the stock market yielded a greater annualized return.
Also noteworthy, both political parties could claim the S&P 500 has historically performed better under their leadership, and both political parties would be correct. For instance, the S&P 500’s average CAGR of 6% during Republican presidencies falls short of the average CAGR of 9.5% during Democratic presidencies. Conversely, the median CAGR of 10.2% during Republican presidencies tops the median CAGR of 8.2% during Democratic presidencies.
Past results are no guarantee of future performance
The S&P 500 performed very well the last time Donald Trump was president. However, that does not mean another Donald Trump presidency would produce identical (or even similar) results. As an example, the S&P 500 returned 6.8% annually during Ronald Reagan’s first term, but the index returned 13.7% annually during his second term.
Additionally, the macroeconomic environment is much different today than it was when Donald Trump was last president. Inflation is elevated, and the Federal Reserve has raised its benchmark interest rate to its highest level in decades, meaning the rates on mortgages, loans, and credit cards are much higher today. Those factors impact consumer spending and business investments and, therefore, heavily influence corporate earnings and the stock market.
Here is the bottom line: Statistics can be manipulated. Republicans and Democrats can claim the S&P 500 has performed better during their presidencies, and they can back those claims with hard facts. So investors should ignore such comments. Additionally, while the stock market soared the last time Donald Trump was president, the same outcome is not guaranteed if he is elected again.
Finally, investors should not forecast returns based on which political party controls the White House. Instead, as Goldman Sachs analysts suggest, the macroeconomic environment is the more important variable. Ultimately, investors should expect the S&P 500 to revert to its average over long periods of time, meaning the index is likely to return about 10% annually when its performance is measured over a period of decades.
