Since you're knowledgeable on the topic maybe you can explain why - in the past 50 years - the market does so much better under Democrats
Seriously - I'd really like to know. I don't think I've heard anyone really give a good explanation (other than dems good reps bad which doesn't quite do it for me). Surely there must be key differences in policy.
That's a good question. Nobody really knows but here are a few possibilities and other salient points.
1. The Democrats really are better for the the economy. Personally, I don't believe this.
2. The stock market has actually done best with a Democrat President and a Republican Congress. The next best has been a Republican President with a Democrat Congress. Third is a Democrat President / Democrat Congress. Last is a Republican President / Republican Congress.
3. Much of the data is skewed by the Depression. Take out 1928-1932 and the data looks different. (I'm looking further back than 50 years.)
4. Democrats are irresponsible over the long run but good over the short run. Contrary to what many believe - and almost all Republicans it seems - deficits are actually good for the market
over the short run. There is strong empirical evidence of this conducted by Ken Fisher. Fisher found that markets tend to expand quite significantly when budget deficits are increasing, and do worse when budgets deficits are contracting. This may not be true in any given year, but it has held over decades, and perhaps more interestingly, across many countries.
5. Likewise, there is an old saying that "Democrats are elected to create inflation and Republicans are elected to get rid of it." In an inflationary environment, stocks tend to rise in nominal terms. In a deflationary environment, stocks tend to fall in nominal terms. Government expansion is inflationary whereas government contraction is deflationary. Democrats generally want more government and Republicans want less.
6. The market is a discounting mechanism, and discounts forthcoming elections incorrectly. A typical reaction in the stock market is for the market to react up to the event, then reverse course when it occurs. It used to be that when casino operators opened a new casino in Las Vegas, the stock of the company would run up until the casino would open, then the stock price would sell off. Likewise, the stock price of Apple tends to run up in front of a new product launch - iPad, iPhone, etc. - then when it hits the market, it tends to sell off or at least move sideways. (See how the stock of Apple has behaved over the past month, and watch it now that the new iPad has launched. I bet you the stock price will either be the same or lower over the next month or two.) Similarly, Democrats are often perceived to be bad for business, so the market may sell off before the election if a Dem is expected to win. But once the election has occurred, investors realize that the Democrats weren't as bad as feared and the stock market rallies. Conversely, Republicans are seen as good for business, so if a Republican is likely to win election, the market rallies in front of the election, only to sell off after it happens. In both scenarios, especially if it is a change of parties, if there is a Republican President and the WH is going to change, the market will sell off on the Republican's watch, skewing the market returns to the downside for the Republican President. Likewise, when there is a Dem in the WH, and a Republican likely to be elected, the market rallying into election will occur on the Democrat's watch, even though it is rising because of an expected Republican win. IOW, the Republicans always lose in these scenarios and the Democrats always wins.
