“Republican rule”
Economy
A common debate among political parties centres on which has greater economic expertise. It is often claimed that voting for the “wrong” party could prevent the economy from reaching its full potential. Following the Republican election victory, we examined how successful they and their opponents have been with regard to the financial markets during past administrations and whether any conclusions can be drawn.

The first aspect we examined was the economic cycle, specifically the growth rates over the past 50 years or so. Over the entire examined period, Democrats performed slightly better, achieving an average annual growth rate of nearly 3%, compared to just over 2.5% under Republican presidencies. The president under whom the smallest economic expansion was recorded was Donald Trump. During his first term, GDP growth was underwhelming, with an average annual rate of only 1.52%. His misfortune was the outbreak of the covid pandemic at the end of his term, which caused a severe economic downturn. Joe Biden’s administration, by contrast, benefited from economies of scale and posted the highest economic expansion of this millennium to date, with an average annual growth rate of 3.58%.
This example illustrates how strongly economic trends can depend on exogenous factors and not solely on the current government. Of the seven recessions during the period examined, five originated under the Grand Old Party and only two during Democratic administrations. Naturally, the opposition party in each case tends to assign blame to the governing party. Fundamentally, however, recessions are a normal part of the economic cycle, occurring repeatedly and often unexpectedly. Governments (through fiscal policy) and central banks (through monetary policy) aim to soften economic downturns through targeted measures. The economic trends observed above under different administrations make it clear that it is impossible to draw definitive conclusions about the development of the next four years.
Bonds
Maintaining price stability is primarily the responsibility of the central bank, but government spending policies can also impact inflation and, consequently, yields. For this reason, we have included both the key interest rates (Fed funds, light blue) and the US deficit (as a percentage of GDP, red, inverted) in the chart below:

Notably, Bill Clinton was the only president in the last 50 years to achieve a budget surplus. Debt levels increased most significantly during the efforts to combat the financial crisis and the covid pandemic. Broadly speaking, these large shifts were again driven by the circumstances of the time. Republicans are generally known for cutting taxes, which reduces revenue, while Democrats are associated with increasing spending. Both approaches are intended to stimulate the economy. However, regardless of the approach, the deficit should remain within reasonable bounds over time. This has largely not been the case, particularly since 2008, with total debt rising to an unhealthy level relative to economic output, from approximately 60% to around 120% today. The chart above also highlights that, in addition to the supply chain disruptions during the pandemic, the extremely expansionary fiscal policy and a monetary policy that became restrictive only belatedly contributed to the sharp rise in inflation. Donald Trump now plans to cut taxes, raise tariffs, and has enlisted Elon Musk to help reduce spending. Financial markets have recently reacted with scepticism regarding whether the rising debt can be controlled, and yields on US government bonds have been climbing again.

Equities
Looking only at the past 50 years, equity markets have performed
better under Democratic administrations. There has not been a single
legislative period during which the equity market declined under their
rule.

The picture is different for Republicans, where both the split Nixon/Ford era (Richard Nixon resigned in August 1974 to avoid impeachment) and George W. Bush’s presidency ended with negative equity market performance. Does this mean one should now exit the equity market? We answer this with a clear no. After all, the other three Republican presidents achieved share price gains exceeding 10% per year during their terms, including the former and newly elected president, Donald Trump. While we cannot entirely rule out a market correction over the next four years, staying on the sidelines comes with the risk of missing out on equity gains. Regardless of which party is in power, the chart clearly demonstrates that equities have delivered long-term gains.
Currencies
For investors thinking in Swiss francs, the US dollar may not appear particularly stable, as its exchange rate has lost nearly 75% of its value over the past 50 years (see indexed USD/CHF exchange rate). However, when viewed through the trade-weighted USD index, it becomes clear that the USD is, in fact, a stable currency:

The average price gains, broken down by party, show no significant differences. The USD saw notable gains in the 1980s and 1990s under
varying presidencies. For the remainder of the period, trends were less pronounced. As such, the past does not provide a basis for predicting future performance.
Alternative investments
Richard Nixon had the most significant impact on the gold price shown in the chart below when he ended the US dollar’s peg to gold in 1971. Until that point, under the Bretton Woods system established in 1944, an ounce of gold could be obtained at the fixed price of USD 35.00. Since then, the United States has been able to expand its money supply without the need to back it with gold reserves.

As shown in the chart above, the price of an ounce of gold rose most sharply in the 1970s following the abolition of the gold price peg, even climbing by nearly 40% per year during Jimmy Carter’s presidency. This was followed by two decades of consolidation before the start of another “golden” decade in the early 2000s. However, no discernible pattern emerges based on the governing party, making it impossible to draw any conclusions for the next four years.
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