The Trump-Biden battle begins: how will markets react?

Do you remember having debate competitions when you were in school?

You couldn’t just make stuff up. If you did, your opponents undressed you, and the adjudicators wiped you off the score sheet.

But one-sided Social Media algorithms now feed us steady diets of whatever they think we believe...

And if we dine on a bit of crazy, they triple our portions.

Donald Trump loves that.

If he were Pinocchio, his schnozzle would be longer than the wall he wants to build. Fact checkers counted 30 false claims during his first 2024 debate with Joe Biden.

Meanwhile, the Democratic President (a political force when in his prime) bumbled, looked confused, and was goaded into a debate about how well he plays golf.

This might have you wondering: How will markets react to another term for either man?

You might be tempted to tune in to CNBC or Bloomberg UK. But if market forecasters were held to an ancient Scythian standard, you would require a séance to get their opinions.

That’s because the ancient Scythians chained the hands and feet of anyone who made a wrong prediction. They then put them on a cart full of kindling and burned them alive.

According to CXO Advisory’s research, the world’s leading economists and stock market predictors are right less than half the time. I’m not supporting what the Scythians did. But without market forecasters, investors would speculate less. As a result, the typical person would have a lot more money.

Now, let’s come back to that US election and the best advice I know.

If you have a globally diversified portfolio of index funds, don’t change a thing.

Yes, that’s easier said than done. Many investors turn bullish and take higher risks when they think a Republican will win. That’s because Republicans tend to be pro-business. They have a history of cutting income taxes, corporate taxes and dividend taxes. Ronald Reagan, both George Bushes and Donald Trump were Republican leaders. It’s widely believed that Republicans pour rocket fuel on the markets.

Meanwhile, Democratic leaders (Bill Clinton, Barack Obama, Joe Biden) lean more to the left. Many investors believe Democrats aren’t as good for stocks. Such leaders typically talk about increasing taxes for the rich, ensuring Auntie Nelly’s insulin shots are cheaper, and promising to reduce little Joey’s college costs.

But your Golden Retriever has as much influence on the markets as an American president, no matter how competent, incompetent or pro-business they might be. Even if they influenced the economy (which is debatable) the economy is not the stock market and the stock market is not the economy.

The economy could swirl down the drain, as it did in 2020. But the stock market (as it did that year) could gain double-digits.

How random are the markets? Look no further than each president’s term.

Since 1929, there were 24 four-year terms: 11 with Republicans and 13 with Democrats. It wouldn’t be fair to average market gains during Republican and Democrat terms because extremes would sway the numbers.

For example, US stocks plunged 77.07 percent during Herbert Hoover’s single term, starting in 1929. He was Republican. And US stocks gained 205.48 percent during Franklin D. Roosevelt’s first term. He was a Democrat.

Using a median (instead of an average) lets us find the middle road.

For example, here are US stock performances for the 11 Republican terms, in order from best to worst (see full details at the bottom of the article).

76.79%, 72.27%, 71.63%, 67.31%, 34.32%, 27.5%, 16.42%, -6.62%, -13.31%, -26.3% and -77.09%.

The median return is the one in the middle:

In other words, 34.32% was the median return for Republican presidents.

US stock performances for the 13 Democrat terms are below. Once again, they’re in order from best to worst.

205.48%, 97.85%, 90.7%, 82.98%, 69.3%, 60.39%, 51.82%, 44.89%, 28.37%, 26.77%, 17.38%, 15.33%, and -40.58%.

The median gain for each Democrat term was 60.39%.

In other words, the stock market gained almost twice as much for Democrats, compared to Republicans.

But don’t be fooled.

Market returns are random.

They have nothing to do with the genius (or clown) in the Oval Office. Nor do they have anything to do with their policies…or their golf games.

If you hear someone predicting how markets will perform, just roll your eyes and remember the Ancient Scythians.

Stick to your investment plan. Ignore market forecasts. Keep adding money to your portfolio of index funds.

You’ll build wealth over time, no matter who’s sleeping in a White House bed.

Four-Year Presidential Terms and U.S. Stocks
1929-2024

Sources: Forbes, Bloomberg, Morningstar
*Joe Biden’s first 3 years, 5 months

Andrew Hallam is the best-selling author of Millionaire Expat (3rd edition), Balance, and Millionaire Teacher.