Comparative presidential stock market returns are always interesting and makes for good political fodder but pretty meaningless. I am not arguing policies don’t matter but the initial conditions or valuation when a president takes office has, in the past, seemed to matter the most on how the market does during that president’s term. Context, baby.
President Obama, for example inherited a collapsing stock market, which bottomed about 7 weeks after he took office. Bush #43 inherited the dot.com bubble, which began to collapse about nine months before he took over, and then existed office with a collapsing credit bubble, handing the Great Financial Crisis (GFC) off to President Obama.
Trump took office with record high valuations and commenced to pump the market higher with his tweets, a China trade deal coming soon meme, and beating the Fed into submission to drive interest rates to zero. Add to that the trillions and trillions and trillions of dollars in rescue and COVID stilumus packages, which drove monetary and fiscal policy in his last year in office, and here we sit.
Moreover, Hoover’s stock market really distorts the average for the Republicans. But hey, it’s politics not purity, no? But so does Silent Calvin Coolidge’s bubble. As does Clinton’s.
Given the intial valuation of a 180 percent stock market capitalization to GDP, either Joe Biden will be the first Demcorat with an negative stock market or the country is heading toward hyperinflation. When you figure that out let us know.
Election Day or Inauguration Day?
By the way, the last time Carol K. posted the following table we had some pushback on when should the clock start ticking to measure presidential returns: a) Election day, or b) the Inaugural?
We took a look at the data and found it actually makes the Democrats average look better. Sorry, Republicans. In fact, it even hurts Trump’s stock market return as we suspect that is what motivated the pushback.
The Dow 7.63 percent runup from Election Day to Trump’s inauguration was eclipsed by the recent 11.07% increase in the Dow from November 4th to the night before the Biden admistration took power.
A problem also arises when trying to nomarlize the lame duck period — from the election to the new president taking office. Prior to 1933, a new president wasn’t swown in until March 4 as is stated in the Constitiuion. It took an amendment to shorten the lame duck period.
The Twentieth Amendment (Amendment XX) to the United States Constitution moved the beginning and ending of the terms of the president and vice president from March4 to January 20, and of members of Congress from March4 to January 3. It also has provisions that determine what is to be done when there is no president-elect. The Twentieth Amendment was adopted on January 23, 1933.
The amendment reduced the presidential transition and the “lame duck” period, by which members of Congress and the president serve the remainder of their terms after an election. The amendment established congressional terms to begin before presidential terms and that the incoming Congress, rather than the outgoing one, would hold a contingent election in the event that the Electoral College deadlocked regarding either the presidential or vice presidential elections. – Wikipedia
It is interesting to see the Dow’s compounded average annual price return (not including divies) is only 5.54 percent since 1901. Makes sense as our priors are that is about the average growth rate of nominal GDP during the same period.
That is why we view the times we now live as an anomaly and not sustainable.
Sorry to burst your bubble but perpetual annual 10-15 percent stock market returns are not a Constitutional right nor an entitlement.