July 21, 2004

VOTE KERRY FOR YOUR 401K:

Presidents And The Stock Market (Dan Ackman, 07.21.04, Forbes)

Does the president affect your portfolio? Candidates would certainly like you to think that the answer is yes, and that the particular candidate doing the talking is better than the other guy.

Over the years, several studies have shown that the stock market has fared markedly better under Democrats than Republicans. The difference, according to Pedro Santa-Clara and Rossen Valkanov, both professors at the University of California Los Angeles Anderson School of Business, is much too large to be random and cannot be explained by fluctuations in the business cycle. Nor can it be explained by higher interest rates in Republican administrations.

The UCLA professors looked at data going back to 1927. Our own study of the post-World War II presidencies confirms their results. We found that the S&P 500 has averaged a total return of 14.1% per year under Democratic presidents since April 1945, and 11.8% under Republicans. The best total returns--17.4% per year--were under Bill Clinton, whose presidency ranked first in economic results. (see: "Presidents And Prosperity") Gerald R. Ford ranks second, followed by Harry S. Truman.


It is explained, obviously, by the discontinuation of major wartime spending by the Federal government: Peace dividends. In fact, a similar thing would almost certainly happen if John Kerry were elected and cut our National Security spending in half.

Posted by Orrin Judd at July 21, 2004 3:51 PM
Comments

So, "Vote Kerry and retire in comfort to someplace that glows in the dark..."

Posted by: M. Murcek at July 21, 2004 3:53 PM

The UCLA study conveniently begins in 1927, immediately before the stock market crash that occurred during the hapless Hoover administration, but failed to cover the "Roaring 20's" markets of Harding and Coolidge. If you cherry pick your dates you can obtain any conclusion you wish. Historically, over any 30 year period, the market increases by around 12% annually.

JFK lowered marginal tax rates leading to the 60's boom, but he was the last of the tax cutting Democrats, until Clinton reluctantly signed the cap gains cuts which led to the late 90s "bubble". Reagans tax cuts led to the 80's boom, while Bush 43s cuts have pulled us out of the post 911 recession and will inevitably push the market higher, once the situation in Iraq becomes more stable.

The lesson, tax cuts, no matter which party is in office, lead to economic growth and higher stock prices.

Posted by: G. Eugene at July 21, 2004 4:48 PM

Another reading is that Republicans get to clean up the messes left after the Democrats inflation induced Bubble parties.

Posted by: Robert Schwartz at July 21, 2004 4:53 PM

Well, data going back to 1927 does a handy job of ignoring the stock growth that occurred during the twenties under Republican presidents.

Posted by: Brandon at July 21, 2004 5:50 PM

Gerald Ford ranks second? "Stagflation" and WIN buttons?

Posted by: Raoul Ortega at July 21, 2004 6:45 PM

Raoul
You're correct.

You can "lie" with statistics don't forget. There was a slight bump during Ford's two years, but your memory is accurate.

The Dow hit its high in 1969, I believe and then never reached that high again (after factoring out inflation) until approximately 1980.

Posted by: h-man at July 21, 2004 7:28 PM

Not only are you right, but part of the Ford bump was the run up in inflation that got out of control during the Peanut Farmer's term. And don't forget there were the aftereffects of Nixon's multi-phase price controls. The start of an inflation can look like prosperity, and it seems that the these numbers show that. (Now if someone can convince Greenspan that once you hit a decade, inflation may not be starting, but it's real prosperity.)

Posted by: Raoul Ortega at July 21, 2004 7:58 PM

Also, remember that of Clinton's 17.4 percent growth rate, at least the last two years of that, from early 1998 to the top of the market in March of 2000, was -- to borrow from "Seinfeld" -- a boom about nothing. In this case, nothing was what so many of the dot-com start-ups produced, while at the same time having billions thrown at them in venture capital money and watching their NASDAQ prices rise into the stratosphere merely based on the idea that everyone was going to order everything they need over the Internet instead of going to real stores by 2003 or so.

That run-up was in its own way as much of a mirage as some of the stocks run up on margin accounts during the late 1920s, the only difference being that despite the collapse, and the 9/11 attacks, we actually did enough right economically after tht to prevent to problem from getting worse. Of course, Clinton was out of office by then, and to many Democrats harping on the economy, the market's drop in 2000 never really happened, and we were in a perfect economy until noon on 1/20/01.

Posted by: John at July 21, 2004 8:28 PM

And 1998-1999 Y2K spending, people also forget that.

Posted by: Sandy P at July 21, 2004 8:30 PM

Is it now Democratic party policy that what's good for Wall Street is good for the nation?

Posted by: David Cohen at July 21, 2004 9:28 PM

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