Investors have many reasons to watch the U.S. election with baited breath. According to some studies, Democratic leadership has generated better stock market returns historically, though Wall Street heavily favours Republican Mitt Romney in the current election.
The two candidates also have different views on taxation, government spending, Federal Reserve leadership and relations with China – and these differences could have a profound impact on the U.S. economy and the stock market in the years ahead.
But here’s another view on the election: Whoopty-doo.
Mark Hulbert at MarketWatch crunched some numbers and found that it is not worth altering your investment approach according to whether Romney or Barack Obama wins the White House.
He looked at 35 previous bull markets in the United States going back to 1900, and found that not one of them began in presidential election months. Just one of them – the 1914 to 1916 bull market – ended in a presidential election month.
He also turned his attention to economic performance, looking at the historical start dates for recessions, as defined by the Business Cycle Dating Committee of the National Bureau of Economic Research. Again, presidential elections had little or no impact: Just one of the 33 recessions since the mid-1880s coincided with an election.
“Though these conclusions seem hard to square with the hype coming out of the presidential campaigns, they nevertheless seem plausible – once we stop to think about it,” Mr. Hulbert said. “That’s because, that hype notwithstanding, both of the major political parties end up managing the economy in profoundly similar fashions.”
Still, it is fascinating to see the drastically different stock market returns under various administrations, especially in their first years. The Motley Fool (via The Big Picture) has a good roundup for the past 17 administrations, and Obama looks very good, with a return of 26.5 per cent for the S&P 500 one-year after the start of his first term.
Fellow Democrat Bill Clinton saw the S&P 500 rise 23.8 per cent in the first year of his second term.
Among the most dismal first years: In George W. Bush’s first year of his initial term, the S&P 500 fell 15.6 per cent. The index fell 18.6 per cent in Jimmy Carter’s first year. And it fell 18.5 per cent in Ronald Reagan’s first year.
The question, of course, revolves around whether the U.S. President influenced the direction of the stock market through his policies – or whether stocks just sort of did their own thing, regardless of those policies.