It’s tough to forget the last federal election. People debated how the markets might react to Hillary Clinton or Donald Trump ascending to the presidency. Some people said stocks would rise if Hillary won. Others said stocks would fall with another Clinton in the White House. Proponents of Trump’s business sense believed stocks would soar with The Donald in the house. Others said his unpredictability might cause stocks to stumble.

But stocks don’t care who sits in the Oval Office. Presidents don’t impact whether the markets rise or fall.

Republican administrations are reputed to be better for business. Democrats, in contrast, are better known for their social lean. Common sense says if any administration could really move the markets, Republicans could. But according to Forbes, between 1920 and 2016, U.S. stocks averaged a compound annual return of 10.83 percent with Democrats in charge. In contrast, when Republicans were in the White House, they averaged 1.71 percent per year. But don’t think for a second that this represents some kind of cause and effect.

Four-Year Presidential Terms and U.S. Stocks
1929-2020

Ranking President Party Time Period Total 4-Year Return For U.S. Stocks
#1 Franklin D. Roosevelt Democrat 3/4/33 to 1/19/37 +205.48%
#2 William J. Clinton Democrat 1/20/93 to 1/19/97 +97.85%
#3 Barack Obama Democrat 1/20/09 to 1/20/13 +90.70%
#4 William J. Clinton Democrat 1/20/97 to 1/19/01 +82.98%
#5 George Bush Republican 1/20/89 to 1/19/93 +72.27%
#6 Dwight D. Eisenhower Republican 1/20/53 to 1/20/57 +71.63%
#7 Harry Truman Democrat 1/20/49 to 1/19/53 +69.3%
#8 Ronald Reagan Republican 1/21/85 to 1/19/89 +67.31%
#9 Barack Obama Democrat 1/21/13 to 1/19/17 +60.39%
#10 Donald J. Trump Republican *1/20/17 to 6/8/20 +48.13%
#11 JFK/Lyndon Johnson Democrat 1/20/61 to 1/19/65 +44.89%
#12 Dwight D. Eisenhower Republican 1/21/57 to 1/19/61 +34.32%
#13 Franklin D. Roosevelt Democrat 1/20/41 to 1/19/45 +28.37%
#14 Ronald Reagan Republican 1/21/85 to 1/20/85 +27.5%
#15 Jimmy Carter Democrat 1/20/77 to 1/19/81 +26.77%
#16 Lyndon Johnson Democrat 1/20/61 to 1/19/65 +17.38%
#17 Richard Nixon Republican 1/20/69 to 1/19/73 +16.42%
#18 Roosevelt/Truman Democrat 1/20/45 to 1/19/49 +15.33%
#19 George W. Bush Republican 1/20/05 to 1/19/09 -6.62%
#20 Nixon/Ford Republican 1/20/73 to 1/19/77 -13.31%
#21 George W. Bush Republican 1/20/05 to 1/19/09 -26.3%
#22 Franklin D. Roosevelt Democrat 1/20/37 to 1/19/41 -40.58%
#23 Herbert Hoover Republican 3/4/29 to 3/3/33 -77.09%

Presidents and political parties don’t move stocks. Instead, stock returns are affected by several factors, most of which are beyond a president’s control: business cycles, corporate profits, monetary policy and stock market valuations.

In fact, market valuations might have the biggest weight of all. Consider Robert Shiller’s CAPE ratio. It measures stock prices, compared to an average of inflation-adjusted past earnings. When a market is trading far above its historical CAPE level, stocks usually slump during the decade ahead. When stocks trade far about their average CAPE level, stocks often soar over the next ten years.

This might explain why stocks languished during George W. Bush’s presidency. The Republican president took office on January 20, 2001. At the time, stocks traded at a CAPE ratio above 42 times earnings. That’s higher than a junkie doing the breaststroke on a swing. In fact, it’s three times higher than its historical long-term average. Over his first four-year term, U.S. stocks dropped 1.69 percent per year. During his second term, stocks fell 7.34 percent per year (ending with the 2008 financial crisis). But don’t blame Mr. Bush. Instead, blame the market’s silly valuation.

In contrast, stocks were cheap in the mid 1930s. They had fallen far further than depression-era business earnings. As a result, the CAPE ratio measured about 7 times earnings. That’s one reason why, during Franklin D. Roosevelt’s first four years in office, U.S. stocks rose 205.48 percent.

Skeptics might say, “Well, at least our presidents affect how businesses perform.” At best, that’s only half true. After all, roughly 45 percent of the S&P 500’s business sales come from outside the United States. For example, according to Coca Cola’s 2018 annual report, about 70 percent of Coca-Cola’s revenue came from outside North America. Statistca.com reports that foreign sales account for more than 60 percent of Apple’s revenue. As a result, American businesses can thrive when foreign economies run high. But presidents don’t prioritize pushing foreign economies (and nor should they).

As for short-term stock market movements, valuations and surprises move stocks more than economics. High GDP can precede low stock returns, and low GDP can precede high stock returns.

For example, U.S. GDP growth was 5.2 percent and 5.6 percent respectively in 1972 and 1973. That’s almost twice as high as the average GDP growth during Obama and Trump’s respective first three years. But despite scorching GDP in 1972 and 1973, U.S. stocks dropped almost 50 percent during the stock market crash of 1973-1974.

On the flipside, the three-year period from 1980-1982 recorded an anemic GDP growth average of 0.47 percent. But over the next three years, U.S. stocks averaged 18.06 percent.

As I’ve explained before, the economy is not the stock market and the stock market is not the economy.

During the first 3 years that President Trump was in office, U.S. stocks grew by about 47 percent. That was before the COVID plunge. In contrast, during the first 3 years of Obama’s presidency, stocks increased about 73 percent.

This doesn’t mean Obama could move the market better. Presidents don’t move the markets. That’s why, when it comes to elections (whether stocks are up or down) don’t let anyone convince you that this president, or any past or future president, should take credit or blame for the market’s short-term whim.

From a practical perspective, invest in a diversified portfolio of low-cost index funds. Ignore stock market forecasts. Let a candidate’s policies and character move your vote. But don’t let any political election affect how you invest.

Andrew Hallam is a Digital Nomad. He’s the author of the bestseller Millionaire Teacher and Millionaire Expat: How To Build Wealth Living Overseas