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How stocks react in the four years after election

Yahoo Finance’s Brian Sozzi, Julie Hyman, and Myles Udland discuss how the market has performed under different administrations.

Video Transcript

MYLES UDLAND: Let's turn our attention back to the markets. We've got a rally underway on this Wednesday morning. The NASDAQ is trading at a record high. And, Brian Sozzi, everyone's little favorite-- I called it earlier today, I called it the local angle that the business media takes on transitions of power with the presidents is how the stock market performs under various scenarios. Now, over time, stock market does usually tend to go up. But Democratic presidents have been quite good for stocks over the last couple of decades. I know you have some hard data on exactly how things have played out.

BRIAN SOZZI: Yeah, Myles, you're a veteran of the battles. Google search loves, loves, loves these type of stories. But some stats here-- and I got to give a shout out to BMO Capital Markets strategist Brian Belski, friend of the show, who is supplying these stats. He noted in a good report this morning chocked full of-- I don't know, might be 75 charts-- for all the years of Democrats being in the White House, on average the annual gain in the S&P 500, 10.4%. That is a pretty darn good gain, and it's slightly more than what the market has seen traditionally under Republican presidencies.

Also too, in the positive years when a Democrat is in the White House, the S&P 500 has risen on average 19.5% compared to 17.2% for Republicans. And another interesting stat here, guys, before-- you know, I don't want to bore anybody with all these numbers on here on this very important day. Since 1932, the average gain in the first year of a Democratic presidency-- 19.4%. That's 8% for Republicans.

So for all the data watchers out there, the numbers fans, the numbers would at least support that the market could be in for a good first year under a President Joe Biden. And, perhaps, a good four years under President Joe Biden. But again, the wildcard here is, as is the case with many of these types of historical looks on how the markets have done, the conditions on the ground are always so different. And of course, right now, we're still right in the middle of the COVID-19 pandemic.

JULIE HYMAN: Well, and I'm going to pick up there and talk to this graphic that we just had up, which shows the effect of a split Congress, as well. The conventional wisdom certainly is that when you have a split Congress, when you have sort of status quo, that tends to be better for stocks. And that's sort of somewhat borne out by what you see there on the bottom graphic, that 13.6% increase when you have a Democratic president in a House and a split Senate, perhaps.

Although, I would have to admit, I'm in the Myles camp, which says that at the end of the day, the longer term trend stocks tend to be up. And you could argue that markets are really agnostic in terms of administration. It's about earnings growth. And, yes, you've got politics that play to that to some degree, but there's a long debate on how much.

MYLES UDLAND: And look, I think Craig Fehr of Edward Jones said it well earlier in the program-- and I think maybe it is worth drawing the distinction for our audience today-- there's politics, which is, you know, the playbook version of politics if you want to call it that, of who's doing what, when, where, why. And then there is policy. And in general, the last 100 years of American policy making has been, in general, favorable to large businesses, which creates favorable conditions for corporate results, which creates favorable conditions for stocks to go up. And I don't really think that that's materially changing.

Maybe there is a world in which the Biden administration decides they want to use some of their-- and again, with that one vote tiebreaker in the Senate-- I would call it limited political capital to push through something big and transformative in terms of policy. They might decide to do that on corporate taxes, but it does not seem to be a high priority. And so, all else equal, corporate tax rate stays unchanged, more money gets put into the hands of more Americans. That's going to be good for spending. That's going to be good for corporate results, good for GDP growth, and again, all else equal, good for stock prices, you would think. That is certainly the market's assumption today.

And so it'll be, again, quite interesting to see how this unfolds as we do get underway, here. A big part of the Biden administration that we know is going to be in place will be the emphasis on getting more Americans vaccinated. I think everyone wants that to happen for a variety of reasons, not the least of which are investors who are, again, rooting for stocks, as always.