Marshall Gittler, Head of Investment research, FXPRIMUS.com
A month ago, I discussed how the dollar might trade depending on whether Donald Trump or Hillary Clinton was elected President. Today I’d like to talk about that theme more generally: not with regards to those two individuals’ policies or characteristics, but rather with regards to their political parties.
It may surprise those who think of the Republicans as “the party of business,” but in fact the Democrats have in general been better for the dollar, better for the US economy, and even better for the stock market than the Republicans have been.
We can sum up the evidence in a few graphs. Here we see the performance of the dollar’s trade-weighted index against the country’s major trading partners during each year since 1973, the year currencies began to float (after a Republican President, Richard Nixon, presided over the demise of the Bretton Woods system of fixed exchange rates). The score is: the dollar has appreciated 58% of the years under Democratic presidents vs 52% of the years under Republicans.
On average, it’s gone up 1.19% a year under Democrats while it’s fallen 0.82% under Republicans. Those figures may be disrupted by a few extreme years. Yet looking at the medians, the 0.70% annual rise under Democrats is still higher than the 0.49% rise under Republicans.
Moreover, it’s been less volatile under Democrats: the standard deviation of those returns is 5.96% for Democrats and 8.52% under Republicans. Just to round things out, the dollar’s best year was last year, under Democratic President Barack Obama (+11.8%), while its worst year was in 1987, under the Republican Ronald Reagan (-15.5%).
The data shouldn’t surprise anyone, because the performance of the US economy has generally been better under Democratic presidents than under Republicans. The US economy has grown an average of 4.6% a year under Democrats vs only 1.9% under Republicans. The median tells a similar story: 5.1% vs 2.7%.
The US economy has grown 83.0% of the years when the Democrats held the White House and only 74.4% of the years that the Republicans have held it.
One might say that this record is distorted by the long tenure of Democratic President Roosevelt, who also held office during a war, but the results are similar if take only the post-WWII period: average growth of 3.7% under Democrats vs 2.8% under Republicans.
The stock market performance reflects the overall economic performance. The S&P 500 has risen an average of 10.5% under Democrats vs only 3.1% under Republicans. This isn’t a matter of a few years disrupting the figures, either. On the contrary, the median tells an even more dramatic story: 12.4% vs 3.3%. And the volatility (standard deviation of return) has been lower under the Democrats, too.
Other economic variables, such as unemployment, show a similar pattern. There’s a book published on the topic that I admit I haven’t read, but the title sums it up pretty neatly: “THEY'RE NOT EVEN CLOSE: The Democratic vs. Republican Economic Records, 1910-2010” by Eric Zuesse. The track record of the two parties is another reason why I expect the dollar to continue rising if Hillary Clinton wins and to fall if Donald Trump wins.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.