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Markets Do Better Under Democrats!

According to the statistics it seems so! In an article written by economist Jeremy Siegel (Published 9/5 on Yahoo Finance), it appears that over the last 120 year period stock markets have risen 10.85% under Democratic presidencies, compared to 8.25% under Republican administrations. This trend has only accelerated in the last 60 years, with Democrat returns averaging 15.26% per year versus 9.01% Republican returns. What is it about Democratic presidencies that drive markets nuts?

Probably not much. A fundamental axiom of statistics is that correlation does not equal causation. Just because stocks have generally gone up more during Democratic regimes does not mean those administrations had anything to do with the good times. For instance, the sky could have been blue more days during Democratic reign, but it would be hard to argue the Dems had anything to do with that.

Republican president Herbert Hoover came to office in 1928, at the peak of a speculative stock bubble. People were frantic about playing the markets, bidding up prices and falling prey to outright fraud in many instances. Herbert Hoover had nothing to do with the econonomic circumstances before he came to office, yet his administration witnessed one of the most severe stock crashes in history! If a Democrat happened to be in office at the time, that crash would have been on their record.

Next, consider whether or not Bill Clinton had anything to do with the internet revolution that sparked one of the largest speculative stock bubbles in our time? Did his coming to power (instead of a Republican) have any influence in development and commercialization of the internet? Did he have any personal hand in crafting the democratization of finance that led to a revolution in global capital flows? It's 99.9% certain that if someone else came to power at that time these events would have occurred nonetheless.

Market-moving events often occur regardless of who happens to be in a particular office. The tens of thousands of entrepreneurs who brought the internet revolution cared little for which party ran government - each person had his own motivations for bringing innovation to market. Despite the preponderance of data suggesting Democrats are best for markets, I would caution everyone out there from betting your life savings on that premise!

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Robert Viglione is a writer, investment fund manager, and real property broker. He founded The Freedom Factory, a popular web forum for the discussion of subjects related to political and economic freedom - two concepts which cannot be decoupled.

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