Partisan Perceptions Perk Up Again in Economic Sentiment

Editors’ Note: The following touches on politics, so please note that MarketMinder favors no politician nor any political party, assessing developments for their market, investment or economic effects only.

Whenever an economic report hits the wires, the most interesting nuggets usually lurk under the hood. The headline number is fine and all, but the details showing how we got there? That is the fun stuff! Take the University of Michigan’s Index of Consumer Sentiment for November, which hit the wires Friday. The headline uptick from 70.5 to 71.8 continues the rebound from consumers’ summertime blues, matching the signs of perking optimism we have seen elsewhere. But under the hood, we see partisan sentiment making its customary post-election flip, right on schedule! And it presents a timely reminder on the dangers of letting your political leanings affect your market outlook.

U-Michigan didn’t consistently ask respondents about political affiliation until February 2017. But in the handful of times they asked just before 2016’s election, the last being that October, sentiment among Democrats exceeded sentiment among Republicans in the Obama administration’s twilight. After the Trump administration took office, it flipped, with Republicans overall cheerier. That lasted until Joe Biden won in 2020, bringing four years of cheerier Democrats.

Now the switcheroo is starting again. As Exhibit 1 shows, sentiment among Democrats fell 10.1 points this month, while sentiment among Republicans rose 15.5 points. Democrats are still net sunnier, but that probably won’t last long if the past is a guide. Heck, when it comes to the Index of Consumer Expectations, Republican sentiment is already ahead. (Exhibit 2)

Exhibit 1: A Partisan Look at Consumer Sentiment

Source: University of Michigan, as of 11/22/2024. Dashed lines indicate periods when the partisan perceptions questions weren’t asked.

Exhibit 2: A Partisan Look at Consumer Expectations

Source: University of Michigan, as of 11/22/2024. Dashed lines indicate periods when the partisan perceptions questions weren’t asked.

The US economy does not, of course, become simultaneously better or worse on Election Day. Nor do regulations, taxes and the overall ease of doing business suddenly change the first Tuesday after the first Monday in November. But for people with partisan leanings, a simple change in the party occupying the White House alters the lens through which people see things. When their party is in charge, the lens is much more rose-colored. When voters serve their party an eviction notice, everything comes up grey.

We get why this is so. When you prefer a political party, chances are you like their policies—including their economic policies—and think they will make life better overall while the other party’s will make things worse. We saw this on both sides throughout the election campaign. Democratic-leaning folks argued a Harris administration would be better for public investment and consumer spending … and that a Trump White House would pump inflation and choke growth with higher interest rates. Republican types posited a Trump administration would drive consumer spending and business investment with friendlier taxes and easier regulation … and that a Harris administration would sap investment incentives. If these folks drink their own Kool-Aid, then it will logically affect their own outlook.

But that doesn’t mean the outlooks are right on either side. All presidents have a few things in common. One, they aren’t Kings or Queens and therefore can’t do much, without Congress, to actually affect everyday commerce and investment incentives. Two, they are all just politicians, and politicians have a long record of saying X on the campaign trail and then not doing it … and sometimes doing Y or Q instead if that is how the wind is blowing. It is a grand bipartisan tradition, and it usually renders high hopes and big fears of any administration similarly off base.

The simple truth is that neither party is inherently good or bad for markets. Bull markets have started and run under both. So have bear markets. Stocks have had good years with Republican and Democratic White Houses. They have had bad years with Republican and Democratic White Houses. The two longest, most brutal bear markets in recent memory (2000 – 2002 and 2007 – 2009) started under one party and continued under the other. So did the longest bull markets (1990 – 2000 and 2009 – 2020). In a way, Exhibits 1 and 2 show people subconsciously know this, as the red and blue lines move in the same direction the vast majority of the time, apart from those flips around the elections. Most of the time, they see and acknowledge the same trends, just with a greater or smaller degree of underlying cheer based on the White House’s occupant.

So—and this is not a 2025 market forecast (still working on it, we will get back to you)—if you find your feelings about the economy and market match what you see in Exhibits 1 and 2, consider this a friendly reminder to set that little part of you aside when assessing these things. Partisan bias can create huge blind spots if you allow it to infect your outlook. It could lead you to avoid or pile into certain sectors and industries, depending on what you think will or won’t thrive under the next government. At the most extreme, it could lead you to make wholesale asset allocation changes at the wrong time, which could veer you from the path to your long-term financial goals.

Remember, too, that markets are efficient. They price all widely known information, including political opinions. Democrats’ and Republicans’ economic opinions are widely known—the U-Michigan Survey isn’t the first to document the flip. Hence, both are probably already factored into stock prices. Feelings may stick for a while, but the market is moving on.