In a recent thread on r/ETFs, I mentioned that I would provide data to break down the performance of US stocks vs. international (and other asset classes) from Testfolio. In brief, US stock markets have performed better under Democratic presidents than under Republican presidents, both on a nominal and an excess (above risk-free rate) basis, a phenomenon known as "the presidential puzzle". However, correlation is not causation, and Pastor and Veronesi explain this through the context of time-varying risk aversion.

Methodology

Testfolio provides several tickers relevant for these backtests. Details for the data sources are documented:

• SPYSIM: Mimics S&P 500. Based on Dow Jones Composite Portfolio through 1928, then Schwert S&P 500 composite portfolio through 1962, then S&P 500 price index through 1993, then SPY thereafter.
• VTISIM: Total US stock market, based on Fama-French dataset from 1926-1992, then investible mutual funds/ETFs afterwards
• VXUSSIM: International ex-US stock market, based on MSCI World ex-USA NR monthly data from 1970 to 1996, then investible mutual funds afterwards.
• VTSIM: Global. VTISIM/VXUSSIM at marketcap weights through 2008, then VT afterwards.
• GLDSIM: Spot gold, based on LBMA gold price from 1968 to 2004, then GLD afterwards.
• TBILL: Fama-French Rf from 1926-1954, then 3-month T-bill rate thereafter.
• IEFSIM: 10-year US treasury rate from 1962-2002, then IEF thereafter.
• INFLATION: Unadjusted CPI-U.

Additionally, to better capture stock market returns attributable to each incumbent, I "staggered" the investment period by starting and ending it on "Inauguration Day" rather than "New Year's Day". Note that Inauguration Day has been January 20 since 1937; prior to 1937, Inauguration Day was March 4, and this is reflected accordingly in the "staggered years". As such, 1973 refers to the period from 1973-01-20 to 1974-01-20. (Note also that this does not double-count January 20 for adjacent years because Testfolio "invests" at the close of the starting day for each period.)

A table with links to each of the data is on the bottom of this post.

US Equities vs. Cash and Inflation

We have data for US equities, "cash" (risk-free treasuries), and inflation going back to 1926, with the Fama-French Data Library doing much of the heavy lifting.

Going back to 1926, US equities (+10.28% p.a.) did better under Democratic presidencies (+13.80%) than under Republican ones (+6.58%). However, it should be noted that even though inflation was also higher under Democratic presidencies (+3.63%) than under Republican ones (+2.22%), cash (or short-term treasury bills) paid less (+2.42%) under Democrats than under Republicans (+4.34%).

We can strip out effects of the Roaring Twenties and the Great Depression–a terrible time for stock markets under Republican leadership, but also a very deflationary one, with subsequent rebound under FDR–by starting our timeline in 1940. In this case, US equities still did better under Democrats (+13.74%) than Republicans (+9.07%), but the inflation gap (+3.97% vs. 3.43%) is closer; short-term treasury bills still paid less under Democrats (+2.77% vs. 4.69%).

Regardless of which party was in office, you would have generally done well to stay invested in US equities on a nominal, real, and risk-free premium basis. That is, US equities delivered positive returns that were above inflation and above risk-free treasury bills.

US Equities vs. Treasuries

Starting in 1962, we have access to IEFSIM, which is based on US10Y treasury rates through 2002, and then on the IEF ETF (7-10 year treasuries) thereafter. This provides a real investment alternative to cash/t-bills.

During this time, US stock markets performed better under Democratic presidents (+14.06% vs. +7.39%). Inflation was similar, slightly lower under Democrats (+3.60% vs. +3.92%). Treasuries paid higher under Republicans (+8.94% vs. +2.98%), which can be largely attributed to the Volcker era response to persistent inflation in the 1980s and the ZIRP policy of the 2010s in response to the Great Financial Crisis. In fact, US treasuries have performed better than equities under Republican presidents (+8.94% vs. +7.39%).

US Equities vs. Gold

Another alternative to US equities is gold, which has gained in popularity with its recent surge. This is a useful separate gauge because on balance short-term interest rates have been lower under Democratic presidents than under Republicans, both on a nominal and real basis. However, gold provides a "benchmark" that is not directly affected by central bank policy.

Because the dollar had been pegged to the gold standard, the price was essentially fixed until the reopening of the LBMA in 1968; Testfolio has data starting on 1968-04-01. Additionally, the US did not formally break from the gold standard until Nixon's announcement on 1971-08-15 marked the end of Bretton Woods. Both timelines are represented here:

This period was also characterized by better equity performance under Democratic presidents (+15.52% vs. +7.39%), with similar levels of inflation (+3.97% D vs. +3.92% R). Gold also performed similarly (+8.44% D vs. +8.19% R) regardless of political party in office. However, US equities significantly outperformed gold under Democrats (+15.52% vs. +8.44%), but performed essentially slightly worse under Republicans (+7.39% vs. +8.19%).

A similar (but more pronounced) trend can be seen if using the post-Bretton Woods period to look at US equities vs. gold.

US Equities vs. International

The final major asset class is international (ex-US) equities. This also provides a separate gauge to isolate the effect of fiscal policy, because when the FOMC cuts, all else being equal, the dollar weakens relative to other currencies, thereby boosting USD-denominated international returns (and vice versa).

Unfortunately, we do not have any real data until 1970 for international markets with the creation of the MSCI indices, which initially tracked only developed (MSCI World) markets:

In 55 years of available data, US equities soundly outperformed international (+11.05% vs. +8.88%). However, outperformance came during Democratic presidencies (+15.35% vs. +9.84%); under Republican presidents, US equities slightly underperformed their international counterparts (+7.94% vs. +8.17%).

I want to emphasize these do not constitute a reason to completely switch your asset allocation to gold or to international (and certainly not to pull all your stocks out of the market). Past performance is not an indication of future performance. It is as nonsensical to say "the US always underperforms under X" as is to say "the US will always outperform international".

Testfolio Data Series

All of these data are available through Testfolio. Because these are limited to five "portfolios" per backtest, for each year, I've put S&P 500, US, Cash, Treasuries, and Inflation in the "US" link and international, global, and gold in the "gold" or "intl" link.

Note that these reflective "cumulative" returns for each period. All of these are one year periods with the exception of the following:

• 1926: 1926-06-30 to 1927-03-04 due to start of data series
• 1936: 1936-03-04 to 1937-01-20 due to change in Inauguration Day (20th Amendment)
• 2025: 2025-01-20 to 2026-01-16 (current)
• 1961, 1968, 1969: Returns for treasuries^†, gold^‡, and international^§ are based on start of data series as indicated in foot notes below. Note that for the sections above, the "other" asset classes are aligned to the same date (i.e. US stock returns for "After Bretton Woods" started on 1971-08-15), even though these are not shown in the table below.

* Data series starts on 1926-06-30 and reflects data through 2016-01-16. Prior to 1937, each "year" began on March 4, coinciding with Inauguration Day. With the passage of the 20th Amendment, the staggered years start on January 20 beginning on 1937-01-20.
† Data series for intermediate-term treasuries (IEFSIM) begins on 1962-01-02.
‡ Data series for spot gold (GLDSIM) begins on 1968-04-01. Nixon formally ended the Bretton Woods gold standard on 1971-08-15.
§ Data series for international (VXUSSIM) and global (VTSIM) begins on 1969-12-31.