Political Parties and the Stock Market
Again and again it's touted as "common wisdom" that along with "Wall Street" voters should prefer a Republican President. Let's not bother, for now, with the gross simplification that pretends Wall Street or common wisdom are easily identified and circumscribed as such. The point is that people are trying to hoodwink you into thinking the Presidential contest is ultimately about delivering cash to your wallet, and what's more: to hoodwink you into believing that somehow a Republican President will make that happen. At least two things are wrong with that: one, you ought to vote your conscience, or consider what you think you and your fellow citizens wish to see put into effect - not according to fear and greed, let alone other base emotions. Second, it's not supported by an evidence, neither in current or recent or proposed policy nor in history, that a Republican would do better for the investor. Let's look a little closer at how that argument pans out.
Every few years, history buffs and Wall Street sages parse a vast amount of market data to study the influence of the four-year Presidential cycle on investments. Following up on my recent post about voting your pocketbook, consider the historical take on who really is better for the stock market - Democrats or Republicans. Monthly values for one bellwether, the S&P 500 index, are available for the entire 20th century. If you tally the nominal gains for each Presidency, you can construe an average nominal return for Republicans vs. Democrats. - First glaring problem with this method: while the Standard and Poor numbers are popular, they do not represent the broadest index one might consider. Second obvious caveat: congressional control is not factored in, although it should be obvious that occupants of even the more empowered governmental position may not be the difference that makes the difference Nevertheless, it is entertaining to break things down into cycles; tech-heads on Wall Street do it all the time, and when I was in finance, I carried such charts on every appointment. Without further ado: here's the gist.
Of the 18 Presidents over the course of the past century, 11 were Republicans and 7 were Democrats - of course the length of their terms differed... but let's not pretend this is rigorous stuff here, okay? What I'm blogging here is this: as I indicated in my earlier post, contrary to wide-spread and false assumptions, the Democrats had the edge, booking a total gain of 66 per cent, versus just under 40 per cent of all Republican presidents together. The biggest increase, as most people remember, occurred under Bill Clinton: over 200 per cent; Calvin Coolidge won Silver in this race across history with 175 per cent during the roaring twenties - another bubble period, as we should always be reminded (he was a Republican, if you want to uphold the fictional continuity of political parties over such a time-span). Hindmost was Herbert Hoover, and his elephantine markets were taken for 71 per cent by the devil of the depression, while donkey Woodrow Wilson entered this spurious history as the second-worst performing President in the S&P 500, losing 27 per cent over his term. So you just cannot believe a Republican is going to be "better for the markets"!
(At this point, in case clients are desperate for a crystal ball, out comes the chart that says uncertainty is good for the market: as long as the markets don't know who is going to tinker from within the Beltway, they're off and running... but that's the ugly specter of market timing... Hey, in case you're trying to read between my HTML: I never ever said the last year of a presidency is better or worse than any others in the cycle, but lots of people argue that it is.)
Now before you want to call this two-way race across a century of numbers a tie, wait just one moment: yes, maybe in the face of the best and worst efforts by policy wonks or technocrats, voodoo economists or faith-based tinkerers, visionaries or retro-reformers, the markets seem to follow their own tune - yet, beyond the playful numerical comparisons, it's always and especially now a good a idea to balance this kind of rear-view mirror pop-analysis with an actual study of market data and their selection and motivation, such as the economically astute After the New Economy by Doug Henwood, or the new (and important in other ways) My First Recession by Geert Lovink.
Every few years, history buffs and Wall Street sages parse a vast amount of market data to study the influence of the four-year Presidential cycle on investments. Following up on my recent post about voting your pocketbook, consider the historical take on who really is better for the stock market - Democrats or Republicans. Monthly values for one bellwether, the S&P 500 index, are available for the entire 20th century. If you tally the nominal gains for each Presidency, you can construe an average nominal return for Republicans vs. Democrats. - First glaring problem with this method: while the Standard and Poor numbers are popular, they do not represent the broadest index one might consider. Second obvious caveat: congressional control is not factored in, although it should be obvious that occupants of even the more empowered governmental position may not be the difference that makes the difference Nevertheless, it is entertaining to break things down into cycles; tech-heads on Wall Street do it all the time, and when I was in finance, I carried such charts on every appointment. Without further ado: here's the gist.
Of the 18 Presidents over the course of the past century, 11 were Republicans and 7 were Democrats - of course the length of their terms differed... but let's not pretend this is rigorous stuff here, okay? What I'm blogging here is this: as I indicated in my earlier post, contrary to wide-spread and false assumptions, the Democrats had the edge, booking a total gain of 66 per cent, versus just under 40 per cent of all Republican presidents together. The biggest increase, as most people remember, occurred under Bill Clinton: over 200 per cent; Calvin Coolidge won Silver in this race across history with 175 per cent during the roaring twenties - another bubble period, as we should always be reminded (he was a Republican, if you want to uphold the fictional continuity of political parties over such a time-span). Hindmost was Herbert Hoover, and his elephantine markets were taken for 71 per cent by the devil of the depression, while donkey Woodrow Wilson entered this spurious history as the second-worst performing President in the S&P 500, losing 27 per cent over his term. So you just cannot believe a Republican is going to be "better for the markets"!
(At this point, in case clients are desperate for a crystal ball, out comes the chart that says uncertainty is good for the market: as long as the markets don't know who is going to tinker from within the Beltway, they're off and running... but that's the ugly specter of market timing... Hey, in case you're trying to read between my HTML: I never ever said the last year of a presidency is better or worse than any others in the cycle, but lots of people argue that it is.)
Now before you want to call this two-way race across a century of numbers a tie, wait just one moment: yes, maybe in the face of the best and worst efforts by policy wonks or technocrats, voodoo economists or faith-based tinkerers, visionaries or retro-reformers, the markets seem to follow their own tune - yet, beyond the playful numerical comparisons, it's always and especially now a good a idea to balance this kind of rear-view mirror pop-analysis with an actual study of market data and their selection and motivation, such as the economically astute After the New Economy by Doug Henwood, or the new (and important in other ways) My First Recession by Geert Lovink.
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