Is the Stock Market A Report Card On The Presidency?
We are in an election year unlike any other. The commercials and mud-slinging have begun, as both parties position themselves for the best possible outcome on election day.
One of the huge challenges facing voters is how to differentiate facts from propaganda. Regardless what side of the aisle you lean towards, the reality is elections are filled with slick advertising and marketing that often distorts reality in a big way. For example, if you look at traditional wisdom promoted by the mainstream news sources the messaging is that the liberal Democrats are generally bad for the economy and the stock market because of their belief in large government and big government spending. The widely accepted belief is that the fiscally conservative Republicans are better for the stock market.
Jeremy Siegel the Russell E. Palmer Professor of Finance at the Wharton School at the University of Pennsylvania analyzed the stock market returns going back to 1952. His results concluded that real stock market returns average 10.6% for Democratic administrations and only 4.8% for Republicans.
Within these findings we begin to recognize the complexity of trying to assign cause and effect to some very simple questions.
It is important to note – the Presidency is not directly connected the stock market.
Congress controls the purse strings and the Federal Reserve establishes interest rates and monetary policy. So, while we can look at history and crunch the data that is available, we also need to evaluate a broader picture that falls outside of the realm of simple Democratic and Republican labels.
Furthermore, not all Presidents serve for the same amount of time. How do we compare the returns that Franklin D. Roosevelt presided over during his 145 months in office to John Kennedy who only served for 34 months?
Under both Democratic and Republican administrations, the stock market has performed positively over the last 100 years. But… is the stock market the best benchmark on the underlying economy? Shouldn’t we also look at things like government spending in relations to GDP, or unemployment, purchasing power of the currency and inflation to arrive at a broader picture of the health of the overall economy? Part of the challenge of constructing such an indicator is economic literacy of the population. In the absence of such an indicator we are subjected to the pronouncements of politicians telling us that UP is good and DOWN is bad for the stock market and thus the Dow Jones Industrial Average is used as a proxy for economic prosperity.
In reality, these fluctuations require more analysis to determine their validity and value to traders. I chose to analyze at the Dow Jones Industrial Average from March 1921 to the present time. We have had 17 different Presidents over the last 99 years. Since 1929, only four Presidential administrations have experienced negative returns on an annualized basis. The average annualized return for a president’s term is over 10%. What is clear in studying this data is that voters do tend to vote according to the health of their pocketbook.
Here is a listing from bottom to top of each administration over the last 99 years.
President Herbert Hoover presided over the most severe economic contraction in U.S. history. He was President during the October 1929 Stock Market Crash. Hoover attempted to revitalize the economy with government loans which proved insufficient. He served only one term and lost in a landslide to Franklin Delano Roosevelt in 1932.
Richard Nixon, the 37th president is perhaps among the complicated Presidents in history. He took America off the Gold Standard in 1971 and ushered in the age of pure fiat currency and deficit spending. He opened up China to commerce. In 1971, Nixon ordered a freeze on all prices and wages in the United States for 90 days to get inflation under control. The policy was a dismal failure. The U.S. economy was plagued by stagflation—high inflation, slow economic growth and high unemployment. Nixon resigned on August 9, 1974 to avoid impeachment.
As George W. Bush entered office the dotcom bubble was still in full effect. Then he presided over the geo-political consequences of 9/11 which led to a massive selloff in the stock market. By 2007, the DJIA reached its highest point in history at the time. However, later that same year, the seeds of the Great Financial Crisis were planted in a subprime housing bubble crisis. Bush left office during a historic selloff, with the Dow down 26.5 percent under his leadership.
Inflation and unemployment were the most serious issues of the late 1970’s. By 1979 it had reached double-digit levels. Carter’s term in office was also marked by an energy crisis resulting in gasoline prices at the pump rising sharply. He also presided over the Iranian Revolution that deposed Shah Mohammad Reza Pahlavi in February 1979 and led to revolutionaries taking over the U.S. embassy in Tehran and holding hostages until the end of Carter’s presidency.
Kennedy established multiple economic initiatives, which included increased minimum wage, expanded unemployment and social security benefits, more highway spending, and lower income and corporate tax rates. He was assassinated in Dallas, Texas on November 22, 1963.
Harding enacted several significant economic and social changes, including lower taxes, increased tariffs, and strict immigration restrictions although his administration is remembered today for scandals. He died suddenly 29 months after taking office.
LBJ’s administration is credited with the Great Society programs which ushered in billions in new social spending programs. Under LBJ, the unemployment rate fell from 5.5 percent to 3.4 percent while the stock market made significant gains, with the Dow climbing 26.1 percent. His administration was engulfed completely in the expansion of the Viet Nam war forcing LBJ to not seek re-election in 1968.
The stock market performed well under Gerald Ford, despite high unemployment and inflation. In the 29 short months of Ford’s presidency, the Dow climbed by 40.6 percent. Under Ford the Options Exchanges were founded and created on Wall Street.
Also under Ford, on May 1, 1975 the Securities and Exchange Commission eliminated fixed commissions for stock trading. Before this change, all investors paid the same fees for every trade, no matter how small or large. After this change, with fees set by competition, investing became a viable option for more of the population. This change ushered in the discount brokerage industry.
Bush ’41 presided over some of the most monumental geopolitical shifts in history. The Berlin Wall fell and Germany was unified, the Soviet Union collapsed, and the Cold War ended. Also, under Bush, Iraq was swiftly defeated and successfully driven from Kuwait by American forces during the Operation Desert Storm. Bush was a single-term president. Still, the stock market performed relatively well under him. During his four years in office, the Dow climbed 41.3 percent.
As of this writing, President Trump has witnessed one of the most volatile economic environments in history. The U.S. economy initially added jobs since becoming President, and the unemployment rate fell to under 3.5 percent, the lowest level since the 1960s. But in February 2020 the COVID-19 pandemic forced an economic lockdown creating over 50 million unemployed and thousands of business failures. In spite of this volatility, the Trump stock market has performed well being up 43% during his 43 months in office. His administration was plagued by multiple scandals leading to his impeachment by the House of Representatives in December 2019.
President Harry Truman assumed the Presidency upon the death of FDR in 1945. During Truman’s second year in office the Stock market collapsed and the country slipped into a recession. In his second term the unemployment rate fell from 7.9% to below 3% and the stock market surged. When he left office, the Dow was 75.2% higher than when he entered.
Eisenhower expanded the social welfare policies of his Democratic predecessors. He raised the minimum wage and created the largest public works initiative in American history – the Interstate Highway System. His administration weathered three recessions but during Eisenhower’s eight years in office were marked by steady growth in the stock market, with the Dow climbing 123.7 percent.
Reagan cut taxes, reduced social spending, and regulations on business, and increased military spending. Under Reagan’s economic policies, the United States accumulated deficits and became a debtor nation for the first time since WWI. During Reagan’s first term in office Fed Chairman Paul Volcker raised interest rates to all-time highs to get inflation under control. The Black Monday crash occurred in October 1987, in which the Dow lost nearly 22 percent of its value in a single day. In spite of this, the Dow soared 147.3 percent under Reagan.
When Barack Obama assumed the Presidency in January 2009, the U.S. economy was in the complete grip of the Great Financial Crisis which had unfolded during the fall of 2008. The Dow fell more than 9 percent in his first month in office. In July 2011, the debt ceiling crisis exposed the severity of the political gridlock in Washington and prompted Standard & Poor’s to downgrade the U.S. credit rating. President Obama presided over the longest economic recovery in U.S. history and over the course of his presidency, the Dow surged by 148.3 percent during his 96 months in office.
FDR was elected to office four times. He sat in the Oval Office for 145 months and presided over some of the most difficult times in American – and world – history. Roosevelt ushered in the “New Deal” policies to turn the economy around. Initially unpopular with the business community, Roosevelt tightened finance regulations by creating the Federal Deposit Insurance Corporation and Securities Exchange Commission as well as a pension system with the Social Security Act. Despite dipping at the outset of America’s entrance to WWII, the Dow shot up by nearly 200 percent during his time in office.
Clinton’s two terms were defined by nearly unprecedented peace and economic prosperity – the government achieved a budget surplus, and the administration signed an agreement eliminating trade barriers between the United States, Canada, and Mexico. His administration was plagued by scandals and he was impeached by the House of Representatives in 1998. In his 96 months in office the Dow rose 228.9%
Coolidge found himself in the Oval Office following Harding’s sudden death in 1923. Coolidge cleaned up the widespread corruption of Harding’s administration, cut income, gift, and inheritance taxes, reduced government spending, and adopted a pro-business posture.
Coolidge served during a decade of unprecedented growth in wealth, consumerism, and urbanization that came to be known as the Roaring Twenties. Under Coolidge, the Dow shot up 230.5 percent. Just six months after Coolidge left office in March 1929, the United States slipped into an economic depression that wiped out all stock market gains accumulated during his presidency.
Chances are you weren’t aware that the top three Presidents in terms of Dow Jones Performance were Calvin Coolidge, Bill Clinton, and Franklin Roosevelt.
Here is a graphic which communicates the performance variances between the different Presidents:
While this information makes for great talk on financial news shows and cocktail parties it unfortunately is not going to help you make any money in the markets.
Great trading is all about being on the right side of the right market at the right time.
More importantly what all great traders know is that somewhere there is a market moving that is making other traders a lot of money.
It might be moving UP.
It might be moving DOWN.
The challenge of trading is to find and isolate those markets with the best risk/reward.
There are over 9,000 different tradeable assets for you to engage with. Do you have the skills and confidence to sift through all of them?
Moving forward how do you define risk?
HINT: If you don’t carefully define risk you will never be able to define opportunity because they are both very much connected.
You have seen the stock markets’ performance over the last 99 years through 17 different Presidential administrations. Imagine if you had tool like artificial intelligence at any one point in this history to assist with your decision making.
Broadly speaking, A.I. is the ability of a computer to understand your question, to search its vast memory banks and data resources, and to give you the best, statistically most accurate, answer.
3,300 stocks trade on the NASDAQ.
2,800 stocks trade on the NYSE.
Plus, there are over 1,900 options on stocks on the AMEX, including ETF’s, ADR’s and Indexes.
That’s over 8,000 different trading instruments!
Do you really think you can effectively evaluate thousands of stocks and determine which ones have the greatest statistical probability of success?
Winning in the market is all about having the best tools.
Without them you will fall victim to the horrible headlines and news stories which destroy portfolios.
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This year, regardless who wins the Presidency you get the EDGE you always wanted in the markets.
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