Why Obama Is Good for Stocks

How presidents drive—or kill—the markets.

So Obama won. Next question: what does it mean for the stock market? Every election year, much ink is spilled in the business pages this two-fold question: Who will win? And what will that mean for the market?

Amazingly enough, there seems to be no shortage of answers to what seems, on the surface, a simple query. Consider the following chart compiled by the brainiacs at Goldman Sachs. It’s pretty simple stuff: the year-to-year change in the Dow Jones Industrial Average during every single year of every presidency since 1900.

There’s a trove of observations one can make by looking this thing over, even if it doesn’t put the question to rest once and for all. Without further ado:

• Bill Clinton is the only two-term president who saw market gains in every single year of his tenure. In fact, only one other president never saw a down year—Calvin Coolidge—but he only served one term.
• Four of the five worst years for the stock market since 1900 occurred during Republican administrations (1931, 1907, 1930, and 1920). Surprised? Given recent events, maybe not, but it does turn conventional wisdom on its head. It also makes one wonder why so many Masters of the Universe vote Republican.
• That said, three of the five best years since 1900 occurred during Republican administrations (1928, 1954, and 1958). Herbert Hoover, mind you, rode in on the 1928 wave of a 48.2 percent gain, but was shown the door after the market hit the skids in 1930 and 1931. Of course, the two best years ever came during Democratic Presidencies—those of Woodrow Wilson (+81.7 percent in 1915) and FDR (+66.7 percent in 1933).
• Markets rise 81 percent of the time in a pre-election year, and 70 percent of the time in an election year itself. Call me a conspiracy theorist, but this seems at least superficial evidence of rigging the game in the hope of favorable electoral results. More to the point, Republicans tend to be very good at juicing the market during election years, with an average increase of 12.4 percent versus Democrats’ 4.7 percent. Poor George W. Bush. He couldn’t even give John McCain that.
• Democrats clearly outperform the year before an election. I’m not at all sure what this means, but the differential—a +22.8 percent average gain versus the Republicans’ +4.5 percent—is large indeed. A charitable view would be that the result of all their efforts pays off in their last full year in office. A less charitable one is that they have no sense of timing.
• But back to the matter at hand: what does Obama’s win portend for the market? We live in interesting times, so it’s unlikely the averages really count this time around, but an average is an average, so we might as well take a look. And the news is good: in post-election years, the market tends to rise 6.2 percent if a Democrat has won the election, and just 4.0 percent if a Republican has won. Something to be thankful for.

Duff McDonald is a contributing editor at both Conde Nast Portfolio and New York magazines. He is currently working on a book about Jamie Dimon, chairman and CEO of JPMorgan Chase, to be published by Simon & Schuster in the fall of 2009.