Bonds and Ballots: How Presidential Terms Influence Fixed Income Returns

When focusing on the near term, inauguration years tend to be good for stocks, regardless of what party is in control. In fact, the S&P 500 index posted returns of over 20% during the last four inauguration years (2021, 2017, 2013 and 2009) (Figure 4). Furthermore, there have been 12 inaugurations since 1977, in which four of those inauguration years resulted in over 30% returns for the S&P 500 index (2013, 1997, 1989, 1985).

Trying to prove a case that one presidential party is better for markets than the other is even more difficult when looking at equity sectors. The best performing S&P 500 sectors during President Trump’s term were information technology (+31.54%) and consumer discretionary (+20.59%). In what might be a surprise to some, the worst performing sector between January 2017 and December 2020 was the energy sector (-11.94). The story flips for the best performing sectors during Biden’s term (through September 2024) as energy (+30.84%) and information technology (+20.09) sectors outperformed. However, the consumer discretionary sector was the worst performing sector between January 2021 and September 2024 (+6.60%) (Source: Zephyr).

While equity performance has typically been strong during the first year of the Presidential term and generally positive throughout the entire term, equity (VIX) and bond (MOVE) volatility typically spikes immediately following the election. Regardless of what party wins the election, history shows volatility increases during the 30 days immediately following the election. However, equities and bonds tend to experience more volatility following a Republican victory (Figure 5).

While the popular belief is Republican Presidents are better for financial markets, that is not necessarily the case, especially for equities. While the sitting Presidential party may have an impact on what equity sectors perform better than others, the broader equity market tends to perform well regardless of what presidential party is in office. However, history also shows that bond performance tends to be better under Republican administrations.