Presidents get a lot of the blame and take a lot of the credit for the stock market performance while in office. However, the president's ability to impact the economy and markets is generally indirect and marginal.
Congress sets tax rates, passes spending bills, and writes laws regulating the economy. That said, there are some ways that the president can affect the economy and the market.
- Presidents have very little impact on the stock market, but they still seem to get some credit when performance is good, and get more of the blame if markets are down.
- Fiscal spending legislation passed by Congress can influence market sentiment.
- As government agencies go, the independent Federal Reserve can have a significant impact by raising (bearish) or lowering interest rates (bullish).
- Bullish stock market sentiment can improve a president's popularity, while a bearish stock market outlook can undermine a president's standing.
How Presidents Impact the Stock Market
Because the president is responsible for implementing and enforcing laws, they have some control over business and market regulation. This control can be direct or through the president's ability to appoint cabinet secretaries, such as the head of the Department of Commerce, as well as trade representatives.
The president also nominates the Chair of the Federal Reserve, who sets monetary policy along with the other Fed governors and members of the Federal Open Market Committee. The Fed is an independent government body with a mission to set monetary policy that ensures economic growth, low inflation, and low unemployment.
Those monetary policy measures can impact the stock market, although the Fed typically does not consider the performance of the stock market as an isolated factor to influence its decisions. The extent to which the person picked as Fed Chair is hawkish or dovish on monetary policy will determine how they affect the economy.
All presidents would like to lead during economic expansion and a rising stock market because those usually increase their likelihood of reelection. As President Bill Clinton's campaign manager, James Carville, once famously said, "It's the economy, stupid."
This chart shows the S&P 500's price change over each four-year presidential term going back to 1953. Two of the terms have two names because President Kennedy was assassinated before the end of his term, and President Nixon resigned before the end of his second term. Their terms were finished by their vice presidents, Lyndon Johnson and Gerald Ford, respectively.
There haven't technically been any CEOs who went on to become president. In fact, Donald Trump may be the closest contender to claim that title. He was chair and president of The Trump Organization before becoming President of the United States. Many have tried, and we'll likely see more attempts in the future.
Presidents and the NYSE
A sitting president will rarely visit the New York Stock Exchange. Sure, President George Washington's statue is right across the street at Federal Hall, but the exchange was barely established during his tenure.
On Jan. 31, 2007, President George W. Bush paid a visit to the New York Stock Exchange. He had just made a speech on the economy across the street at the aforementioned Federal Hall, where he chastised corporations for excessive executive compensation. Little did he know, the nation was about to slip into a financial crisis and the longest recession it had experienced since the Great Depression.
S&P 500 under Biden
The S&P 500 has had a choppy ride so far under President Joe Biden. Biden took office in January 2021 as markets were still rebounding from the losses suffered due to the COVID-19 pandemic. After topping out in January 2022, the S&P was buffeted by interest rate hikes as the Fed sought to restrain inflation. Rising interest rates caused the index to fall for most of 2022. The market is still showing increased volatility as market participants speculate on the size and timing of further Fed rate hikes.
Still, Biden has an overall positive return of 8.65% for his tenure in office. This goes to show that markets are more likely to be moved based on big-picture, macro-economic developments, such as Fed monetary policy, rather than who is in the White House.
Does It Matter Who is President as It Relates to Stock Market Performance?
No. History shows that neither party affiliation, nor who is the incumbent has any direct effect on stocks' performance.
Do Government Policies Have An Effect on Stock Market Performance?
Yes, government policies can have an effect on stock market performance, especially to the extent that they deliver large fiscal spending programs. Market investors view extra government spending as a boon to consumers and then to the market.
Do Tax Cuts Count as Fiscal Spending?
Tax cuts are a form of fiscal stimulus, as they leave more money in consumers' pockets, which drives personal spending and a generally bullish sentiment among investors.
Do the Policies of the Fed Impact the Performance of the Stock Market?
Yes. The Federal Reserve is an independent government body that sets monetary policy by raising or lowering interest rates, among its main tools. Higher interest rates, or speculation on them, generally have a bearish impact on stocks. The thinking is that higher rates will raise the cost of borrowing and act as a headwind to the overall economy. Lowering interest rates can have the opposite effect, unless monetary policy easing is due to a weak economy.
The Bottom Line
While the President can influence the economy through policies and economic agendas that can impact the stock market, the president probably gets too much blame and too much credit when it goes down or up. That's because larger macro events generally drive investment sentiment over the longer term.
A strong or bullish stock market, by raising consumer optimism, can redound the president's popularity and may benefit the incumbent come election time. The same can be said if the stock market is down and investor sentiment is bearish, auguring poorly for the incumbent at voting time. So it could be said that stock market performance has a bigger influence on who is president, rather than the president influencing stock market performance.