hichever party wins the upcoming presidential election could have a significant impact on how investors approach the stock market in the future, according to a Florida Atlantic business professor.
Professor of finance Luis Garcia-Feijoo published a paper on his findings titled “What to expect when you’re electing” in the journal Managerial Finance. He studied 40 years worth of data to see if there was any connection between how the stock market performed and what political party was in charge, an FAU news release states.
An example would be if stocks performed better or worse when the Republican Party was the majority leader in Congress.
Garcia-Feijoo found that times of political harmony — when the same party controls both the presidency and Congress — produced more successful stock performance than when there is a political gridlock.
“The conventional wisdom is gridlock is good for the market, but actually the data show the opposite,” said Garcia-Feijoo in a news release. “In fact, market returns are higher when there’s harmony, not gridlock.”
The study also found that stocks performed better in the third year of all presidencies, no matter the party.
Democratic presidencies had better results when compared to Republican presidencies when it came down to which party was better for the market, according to Garcia-Feijoo.
“It’s not just this paper, it’s others, and they all find the same thing – that having a Democrat in the White House is better for the equity market,” Garcia-Feijoo said. “A Republican president has been historically better for bond markets.”
Stock price was found to be mainly driven by monetary policy, according to the professor.
When the Federal Reserve lowers interest rates or buys Treasury bonds to add capital to the economy, stocks performed better.
Interim dean at the University of Wisconsin-Oshkosh College of Business Scott B. Beyer, professor of finance at Creighton University Gerald R. Jensen and President and CEO of the American College of Financial Services Robert R. Johnson also worked with Garcia-Fejioo on the study.
Both the Democratic and Republican National Convention are scheduled to take place in July. The Democratic convention is from July 25-28 in Philadelphia, Pennsylvania, while the Republican National Convention is from July 18-21 in Cleveland, Ohio.
Ryan Lynch is the multimedia editor of the University Press. For information regarding this or other stories, email [email protected] or tweet him @RyanLynchwriter