Politicians and the media do a lot of talking about the economic implications for each political platform during major elections, which mostly creates a lot of noise.

In turn, much of this noise creates market volatility. However, noise and volatility become less relevant over appropriately longer time horizons for equity market investors.

History suggests to us that what happens within the Washington, D.C. beltway has little relationship with the broader U.S. economy and long-term financial market fundamentals. It is the fundamentals that really matter for investors.

Consider the price change in the large cap U.S. stocks for every administration since President Hoover. The only relationship between political party and stock market returns is that the market has seemingly performed better under Democratic administrations, but even that is a spurious relationship. Two Republican presidents, Herbert Hoover and George W. Bush, had the bad luck of beginning their terms after the stock market had huge runs in the 1920s and the 1990s. Certainly, it could be said that the Hoover bubble burst was brought on by the Great Depression, and the Bush presidency ended with the 2008 financial crisis. However, in both cases, markets were set to fall from lofty price levels. If one were to adjust the results for this bad timing, the stock market returns under both party’s administrations becomes much closer over time.

None of the inputs to economic growth (labor force and productivity growth rates, along with inflation), corporate revenues, and earnings in aggregate are directly and significantly impacted by a presidential administration. Granted, an administration may have significant influence on specific industries through various policy measures (e.g. regulations or subsidies), but, in aggregate, what drives the U.S. economy is the stable growth rate of our labor force and productivity of the private sector. It is these factors that should be the areas of focus for broad equity market investors.

Unlike a centrally planned economy, such as China, these factors are not driven by the president. Through the wisdom of our forefathers, our system of checks and balances prevents any president from wielding too much power. The upward bias to our economy and our markets are a result of our democracy and capitalism. This has held true despite many different administrations, both republican and democratic, with very divergent economic and political policies.

Is it different this time? Yes, the candidates are different. Still, the dominant factors that drive our economy and markets are unchanged regardless of presidential administration. The demographic, productivity, and inflationary trends that drive our economy and financial markets are well entrenched. These trends indicate slow, but steady growth ahead and a positive environment for equity market investors with appropriate time horizons.

Source:  Gary Stringer is the CIO, Kim Escue is a Senior Portfolio Manager, and Chad Keller is the COO and CCO at Stringer Asset Management