Is Donald Trump or Kamala Harris better for stocks? Statistically, one party has had a significantly higher average annual return over the past century.

One party had an average annual performance more than five percentage points higher while in the Oval Office.

In just over three weeks, voters across the country will head to the polls to determine the direction of our great country over the next four years.

Although not all actions taken by the new president and Congress will have an impact on Wall Street, the fiscal policy proposals ultimately implemented by the new administration will have an impact on American businesses and the stock market.

Over the last two presidential terms, investors have performed quite well. During Donald Trump's four years in the Oval Office, the timeless Dow Jones Industrial Average (^DJI 0.97%), the broad-based S&P 500 (^GSPC 0.61%), and the Nasdaq Composite, inspired by innovation (^IXIC 0.33%), respectively, gained 56%, 67% and 138%!

Former president and Republican presidential candidate Donald Trump delivers a speech. Image Source: Official White House Photo by Joyce N. Boghosian.

Meanwhile, the Dow Jones, S&P 500 and Nasdaq Composite rose 36%, 50% and 36%, respectively, during President Joe Biden's term, through the closing bell on October 10, 2024.

But with President Biden set to leave office in just over three months, the million-dollar question arises: Which candidate is better for stocks, Donald Trump or Kamala Harris?

Although history shows both parties to be pro-stock, one party has overseen a significantly higher average annual stock return over the past century.

Trump or Harris will inherit a historically expensive stock market

Before looking at the historical data on party-driven outcomes, it is important to recognize the challenge facing the next president. Even as the current bull market approaches its second anniversary, the next U.S. president will inherit one of the most expensive stock markets on record.

While there are many ways to measure value, the Shiller price-to-earnings (P/E) ratio of the S&P 500 – also known as the cyclically adjusted price-to-earnings ratio (CAPE ratio) – is particularly effective . job of conveying how expensive stocks are right now.

Unlike the traditional P/E ratio, which can be easily distorted by shock events, the Shiller P/E takes into account inflation-adjusted average earnings over the previous 10 years. Looking back over a full decade minimizes the impact of shock events and allows for apples-to-apples valuation comparisons.

S&P 500 Shiller CAPE ratio data by YCharts. CAPE ratio = cyclically adjusted price/earnings ratio.

As of the close on October 10, the Shiller P/E of the S&P 500 was north of 37, representing the third highest value during a continuous bull market when back-tested through January 1871 .

Additionally, in 153 years, there have only been six instances where the S&P 500's Shiller P/E ratio has exceeded 30 during a bull market, including today. Following the previous five instances, the Dow, S&P 500 and/or Nasdaq Composite lost between 20% and 89% of their value. In this regard, history works against the winning candidate in November.

There are other potential concerns as well, beyond just the stock market being exceptionally expensive.

For example, we witnessed the longest yield curve inversion in history. Normally, the Treasury yield curve slopes upward and to the right, with bonds maturing in 10 or 30 years offering higher yields than bonds maturing in a year or less. But when the yield curve inverts and short-term bills generate higher yields than long-term Treasuries, it's often a sign that economic turmoil is coming.

Additionally, the U.S. M2 money supply saw its first notable year-over-year decline since the Great Depression of 2023. There were only five instances where the M2 money supply contracted by at minus 2% on an annual basis. , including 2023, and the previous four events were all correlated with US depressions and double-digit unemployment.

Suffice it to say, neither candidate will be heading into an ideal scenario on Inauguration Day.

Vice President and Democratic presidential candidate Kamala Harris delivers remarks. Image source: Official White House photo by Lawrence Jackson.

Here's What History Says About the Best Stock Candidate

With these challenges in mind, let's return to the question at hand: Is Donald Trump or Kamala Harris better for stocks?

Setting aside their policy proposals and how they could change the landscape of American business, history shows a number of positive scenarios for investors, with one party significantly outperforming the other.

Over the past 71 years, there have been 13 presidents (seven Republicans and six Democrats). Only two of these presidents (George W. Bush and Richard Nixon, both Republicans) oversaw a negative compound annual growth rate (CAGR) for the benchmark S&P 500 during their terms in office. The average S&P 500 CAGR for the last seven Republican presidents is 6.2%, significantly lower than the average S&P 500 CAGR of 9.6% for Democratic presidents.

This historic outperformance of Democratic Party presidents goes back about a century.

^SPX data by YCharts.

Based on data analyzed from 1926 to 2023 by Retirement Researcher, the average annual return of the S&P 500 in a unified (i.e. one party controlling both houses of Congress) or divided context is as follows:

United Republican: 14.52% average annual return over 13 years United Democrat: 14.01% average annual return over 36 years Shared with Republican President: 7.33% average annual return over 34 years Shared with Democratic President : 16.63% average annual return over 15 years

Using this data, we can see that Republican presidents have overseen a very respectable average annual return of 9.32% for the S&P 500 since 1926. However, Democratic presidents have enjoyed a considerably more robust average annual return of 14 .78% for the S&P 500 for 51 years. in the Oval Office.

Based solely on historical data and nothing else (note the italics!), a Kamala Harris victory in November would seem ideal for Wall Street.

However, patience and perspective are far more important in determining investment returns than which party controls the Oval Office.

Historically, it is time, not a particular political party, that is investors' best ally. Because periods of economic expansion are considerably longer than recessions, investors who bet on the U.S. economy growing over long periods of time are poised for success.

Additionally, a comprehensive study updated earlier this year by Crestmont Research examined the 20-year rolling total returns, including dividends, of the S&P 500 dating back to the early 20th century. Even though the S&P didn't exist until 1923, researchers were able to track the total return of its components from other indexes back to 1900. This research yielded 105 rolling 20-year periods (1919-2023).

Crestmont found that all 105 rolling 20-year periods produced positive total returns. In other words, if an investor had, hypothetically, purchased an S&P 500 index fund at some point since 1900 and held that position for 20 years, they would make money, without fail, every time.

Despite the uncertainty that can accompany elections, investors who demonstrate patience and perspective are perfectly positioned to prosper, regardless of whether Donald Trump or Kamala Harris wins in November.

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