U.S. Stock Market Performance in Different Presidencies
September 22, 2008
One of the most visited posts on this site was an article on August 19th comparing how the U.S. economy performed when the president was a Republican to when the person was a Democrat. That blog post took a very aggregated view, synthesizing the 47-2/3rds years since 1961 into three presidential periods, the twenty years between 1961 and 2000 with a Democrat, the other twenty years with a Republican, and the Bush 43 presidency since January 20, 2001. All five vital signs did much better under the generic Democrat administration than the generic Republican administration, and the Republican administrations of the late 20th century had better vital signs than Bush43 in four of five instances.
I’ve been asked to explain this finding. Let me begin by stating that I thought I would come up with mixed results, with inflation and perhaps some other categories doing better under Republican leadership. I would feel more comfortable with my findings if I had a single compelling explanation, but I don’t believe that lack of such information invalidates the evidence. Forty-eight years of one-sided results speak for themselves. The whys of many truths are not well-understood. What has happened in the last 48 years cannot be denied, and the long intervals between power transfers from one party to the next discredits the excuse that an administration inherited a bad situation caused by the outgoing leaders, whereas the predecessor reaped the good results sown by policies of the penultimate administration. Moreover, others have examined this matter with similar methodologies to my own but looking at somewhat different economic indicators and arrived at similar conclusions to mine — see Professors Alan Blinder and Jeffrey Frankel.
To shed additional light, I plan to examine each of the five criteria I used in a more disaggregated manner to see where the disparities were concentrated. I start with stock market performance. The other vital signs will be addressed at a later time. As noted in my original August 19th piece, the Dow Jones Industrial Average advanced 8.1% per annum in the 20 years with a Democrat as President, 6.5% per annum on balance under Nixon, Ford, Reagan and Bush41, and 0.9% per annum under Bush 43. That last figure now needs to be revised downward to 0.7% per annum, which is far below the two hypothetical presidencies. The individual presidencies on the Democrat side were led by Clinton (15.9% per annum over 8 years), followed by Kennedy (5.2% pa in a little less than 3 years), Johnson (3.9% pa in just over 5 years), and Carter (-0.2% pa in 4 years). The stock market did very well under Reagan (11.3% pa over 8 years), Bush41 (9.7% pa over 4 years), and Ford (9.0% pa over in around 2-1/2 years). However, Nixon oversaw a drop of 3.2% per annum over 5-1/2 years, which was even worse than what Bush43 delivered.
The three worst performances of Nixon, Bush43, and Carter ended in disgrace and unpopularity (resignation, Iraq, and hostages in Iran). The perception was widespread that both Nixon and Bush43 had lied. Features of Nixonomics (a failed attempt at wage and price controls and two dollar devaluations) did not fit old-school Republican ideology, and he appointed a Fed Chairman, who accommodated a loose fiscal policy. Bush43 set new standards for growth in government by either a Democrat or a Republican, and Carter’s watch coincided with a sharp deterioration of inflation, which is usually a killer for stock market health. CPI inflation only moved above 3.0% in the final 12 months of the Johnson administration, counter-balancing to some extent mounting voter frustration with the Vietnam War.
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Gotta love this post. I am going to get my buddy the Nixon Fluro! I hope he likes it.
Clinton 15.9 +5.2 Kennedy+Johnson 3.9 – Carter .2 =24.8
Reagan 11.3 + Bush 41 9.7+ Ford 9.0 – Nixon 3.2= 27.8
Your numbers don’t add up. How is this worse for the Republicans?
You need to do a weighted average. Your question counts everyone equally whether they were president for eight years, four years, or less. In the article, I divide presidencies into three groups, the 20 years of a Democrat between 1961 and 2000, the other 20 years with a Republican in that span, and George W. Bush’s presidency. Those weighted averages showed the DOW up 8.1% per annum for 20 years with the Dems, 6.5% per annum for the 20 years with the Reps, and 0.9% per annum with Bush43, another Republican. Had I included Bush43 with the Reps, the combined stock market advance would have been less than 6.5% per annum.