Ted McLaughlin : Dems are Better for the Stock Market

Chart from Bloomberg Businessweek.
Against conventional wisdom:
Stock market does
better under Democrats

By Ted McLaughlin / The Rag Blog / February 27, 2012

The Republicans claim to be the party that best benefits Big Business and Wall Street. And Wall Street (along with the corporate moguls of Big Business) seems to have bought into that idea -- so much so that they are donating millions of dollars to super PACs supporting Republican candidates.

In January, the Republican super PACs revealed they had received about $47 million -- much of it from the finance and investment industry (Wall Street). From these numbers, it is quite obvious that Wall Street believes it would be best served by returning a Republican to the White House.

But this conventional wisdom that says the stock market is best served by having a Republican in the White House is simply not true. And it's not just a little bit untrue, it's a whole lot untrue. Bloomberg News took a look at how the stock market has performed under both Republican and Democratic presidents. What they found was that the stock market performed much better under Democratic presidents. They looked at the last 50 years, since the presidency of John Kennedy -- and this is what they found:

• The sum of $1,000 "invested in a hypothetical fund that tracks the Standard & Poor's 500 index only when Democrats are in the White House would have been worth $10,920" just a few days ago. That's a gain of about 992% in 23 years.
• That same $1,000 "invested in a fund that followed the S&P 500 under Republican presidents... would have grown to $2,087 on the day George W. Bush left office." That's a gain of about 109% in 28 years.
• Even adding in the presidency of Dwight Eisenhower doesn't bring the Republicans near the gain experienced under Democrats. That would increase the return under Republicans to $4,796. That's a gain of about 380% in 36 years -- far less than half of the gain under Democrats in only 23 years
• The annualized return for the 23 years under Democratic presidents is about 11%.
• If that $1,000 were invested in a fund following the Dow Jones Industrial Average (instead of the S&P 500), the return under Democratic presidents would be $7,550. That's a gain of about 655% over the 23 years.
• If that $1,000 were invested in a fund following the Dow Jones Industrial Average under Republican presidents, the return would be $2,716. That's a gain of about 172% over the 28 years.

This blows conventional thinking out of the water. We have always been told that the Democrats were better for the poor and working classes, while the Republicans were better for the investor class. But these figures show that Democratic administrations are better for everyone -- including the rich.

So why do the Wall Street bankers favor the Republicans? Because they aren't as bright as many think they are. They are only thinking about tax policy -- not in what is better for them in the long run. They think the lower taxes for the rich touted by Republicans would result in them having more money than under Democratic presidents with the current tax rate. But is that true?

Let's examine the figures using the current 35% top tax rate for Democratic administrations and a 28% tax rate (proposed by Romney) for Republican administrations, and see which would be best:

• The S&P 500 figure under Democrats had a gain of $9,920. Taxed at a maximum rate of 35%, this would leave the investor with $6448 after taxes.
• The S&P 500 figure under Republicans had a gain of $1,087. Taxed at the smaller rate of 28% this would leave the investor with $783 after taxes.
• The DJIA figure under Democrats had a gain of $6,550. Taxed at a rate of 35% this would leave the investor with $4,257.50 after taxes.
• The DJIA figure under Republicans had a gain of $1,716. Taxed at the smaller rate of 28% this would leave the investor with $1,235.52 after taxes.

As is easily apparent, Wall Street investors would be much better off with a Democrat in the White House -- even if they had to pay a higher tax rate. They would still have more money in their bank accounts. And this would be true even if the Democrats eliminated the 15% capital gains tax rate (the rate that current stock gains would be taxed at).

The fact is that all classes in our society would be better off financially with Democrats in the White House -- whether poor, rich, or somewhere in between. That leads me to wonder -- why would anyone vote Republican?

[Ted McLaughlin also posts at jobsanger. Read more articles by Ted McLaughlin on The Rag Blog.]

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