April 27, 2026

Using the political party of the occupant of the White House to make inferences about the outlook for the economy may require a few implicit assumptions; One being a unitary government where the legislative branches go along with the executive branch wishes and policy recommendations. A second assumes a clear difference between the two political parties. A third assumes that the political parties’ views remain the same or invariant overtime. Once these assumptions are made; it is easy to see why knowledge of the President party affiliation may facilitate the forecast of their impact on the economy and whether it polices will favor labor or capital. Looking at the data on annual employment growth and the annual S&P 500 real returns, it shows that on average these two variables have posted positive returns. Although the magnitude changes, the same hold true during democratic and republican presidencies. A result suggesting that both parties’ economic policies have delivered as far as expanding the economic pie is concerned. Under a political system where the executive branch and legislative chambers are independent of each other policies and legislations are the result of the interaction of the three institutions. While it makes sense to assume that members of the same party may share common interests, there will be commonality among the legislative chambers and executives, but not necessarily a 100% agreement. This suggests that implicit assumption of a unitary government may only be appropriate when there is a great deal of commonality of objectives across the legislative chambers and executives. Under this logic, the one-party trifecta will be the closest approximate the unitary government result. Given the two-party system , there are only two trifectas. While both trifectas are associated with positive employment growth and stock returns. Relative to the sample average , the democratic trifecta favors labor relative to capital while the republican trifecta favors capital over labor. A result that validates the conventional wisdom that democrats are better for labor and republican are better for capital. Other than the trifecta, there are six combinations of a political party holding only one of the following : The White House, the Senate, and the House of representatives. Collectively the six combinations represent what is commonly classified as a divided government. The data reported shows that the opposition does in fact affect and improve the policy mix and, in some cases, it may even steamroll and even reverse the policy initiatives of the White House occupant. Our search for the cycles of relative performance yields interesting insights. The results show that no party has a monopoly on the policy mix it pursues. Another being that the economic views of a political party are not time invariant. The question is what causes these changes? One possibility is that the congressional opposition forces the White House to change direction and the other and perhaps the less likely outcome is that the occupant of the White House has a different view than its party orthodoxy. Our results show that while political affiliation is a good starting point, a good proxy for the policy mix is likely to be adopted by the governments . But one would be remiss if one did not keep track of the policies contemplated by the administrations. As President Reagan used to say Trust but Verify.

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