Hillary Clinton never tired of reminding voters that "The stock market does better when you have a Democratic president in the White House."
That statistic is truer than ever after the past week. As CNBC put it, "U.S. equities closed mostly higher on Friday, with the three major indexes posting their best weekly gains of the year on the back of a surprise Republican sweep....For the week, the Dow rose around 5.4 percent, marking its best weekly performance since December 2011....The S&P 500 underperformed, falling 0.15 percent, with energy falling 1.68 percent to lead decliners. The index, however, ended the week about 3.8 percent higher, posting its highest weekly gain since 2013."
Think about it: If any politician deserves credit for those gains, is it the "Democratic president in the White House," President Obama? Or is it the Republican president-elect, Donald Trump?
I'd argue that it's almost certainly Mr. Trump who deserves credit (though it's impossible to know how the market would have reacted to a Clinton victory). In other words, some of the stock market gains under Democratic presidents are attributable to end-of-term relief that the voters are finally getting rid of them, just as some of the stock market slumps under Republican presidents are attributable to end-of-term fears about the incoming Democratic president (see the fourth quarter of 2008 for a particularly grim example).
By the time the next Democratic presidential candidate runs around trying to make this claim about how Democrats are good for the stock market, people will probably have forgotten this nuance. But it's worth remembering. Stock prices reflect expectations of future earnings. So end-of-term valuations are not only reflections of the performance of the outgoing presidential administration (or Congress) but also measurements of the investors' assessment about the incoming presidential administration (or Congress).