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Wednesday, November 19, 2008

Democratic Presidents and Unified House / Senate deliver best stock market returns

After living through the disatrous Bush era and remembering the Clinton era vividly (I spent most of it with Altamira), I was wondering if this outperformance of Democratic Presidents existed in history. The research predates the current collapse and the trend not only exists, but persists.

From The Democratic Dividend by Slate's Carol Vivant:

But Democrats, it turns out, are much better for the stock market than Republicans. Slate ran the numbers and found that since 1900, Democratic presidents have produced a 12.3 percent annual total return on the S&P 500, but Republicans only an 8 percent return. In 2000, the Stock Trader's Almanac, which slices and dices Wall Street performance figures like baseball stats, came up with nearly the same numbers (13.4 percent versus 8.1 percent) by measuring Dow price appreciation. (Most of the 20th century's bear markets, incidentally, have been Republican bear markets: the Crash of '29, the early '70s oil shock, the '87 correction, and the current stall occurred under GOP presidents.)

Nor does having a Republican Congress help the market. A Democratic Senate showed returns of 10.5 percent (versus 9.4 percent for a GOP upper chamber), and a Democratic House returned 10.9 percent versus 8.1 percent for the Republicans.

When both houses of Congress opposed the president, the return was a stellar 12.9 percent. Libertarians may celebrate this as proof that the market likes gridlock and government inaction. But the market likes steamrollers nearly as much: The S&P performs almost as well—returning 11.8 percent—when the presidency and both houses are held by the same party. The only situation Mr. Market dislikes is what we have now: one house for each party. Those years have a -0.9 percent return.

Republicans are no doubt muttering that that's just the stock market, not the whole economy. But real GDP growth follows the same pattern. Since 1930 (the first year decent data is available), GDP growth was 5.4 percent for Democratic presidents and 1.6 percent for Republicans.

Considering that the Dow is lower than it was when Bush took office, and now testing the 2004 lows, one can make an extremely strong case for an equity bull market during the first term of President Obama. What's left in 2008 is the November month-end rally, some but not a lot (who has profits to offset??) of tax loss selling the first third of December, followed by year end and early January portfolio rebablancing rallies.

Then it's inauguration time and after that we'll see if investors begin to once again have faith in stocks and America. My guess is that they will.

Joe Trainor, Editor / Publisher

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