Presidential
Facts & Figures
(fun things to know and tell)
by James Stack, editor InvesTech Market
Analyst
A
lot of investing perceptions about elections, and their outcome,
are blatantly wrong. We revived a few fun facts and figures while
updating our files for the 25 President Elections of the past
century. For example, while the stock market was twice as likely
to rise in the 6 months after a Republican victory (conservatives
would be proud), that advantage completely disappeared after
12 months. under both a Republican and Democratic President,
the stock market had just slightly over a 50% probability of
being higher at 12 months post-election. [Not great odds considering
the market spends 2/3's of the time going up.]
In the 6 months immediately
following a Republican victory for the White House, the stock
market has "averaged" a slightly better performance
than under a Democrat victory: +7.1% vs. +2.3%. However, that
gap starts to close after 12 months following elections: Republicans
= +6.3%; Democrat = +4.0%. And lets face it, 4-to-6% gains certainly
aren't anything to write home about.
In addition, this "average"
performance overlooks the fact that 11 of the 25 elections during
the past century have seen the DJIA fall over the twelve months
following the election. And almost half the recessions in the
past century (9 of 20) have started in a year following a Presidential
Election. So, in a historical sense, it could be said that next
year being a post-election year is important, but not
as a result of who is -or is not- elected.
More interestingly,
if you looked only at the Presidential Elections since the Federal
Reserve was created in 1913, you'd discover that the odds of
a rising market 12 months post-election were almost twice as
high under a Democratic President.
So how tightly linked
is the economy to the election? The incumbent party has lost
the White House 9 times since 1900. In 5 cases, a recession or
bear market was already underway on Election Day; and in 3 of
the remaining 4 cases, a new recession or bear market began in
the 12 months after election. The only exception: when Clinton
defeated Bush in 1992. So if Gore loses, then historical odds
are high that a bear market and/or recession are underway, or
soon will be.
And how does the
pre-election stock market affect the election outcome? Over
the past century, stock market performance from July 1st to Election
Day appears to be critical to the incumbent party. If the DJIA
fell more than 1%, which happened in 5 cases, the incumbent party
lost the White House every time. [The DJIA is currently down
-4.5% since July 1st.]
How does Federal
Reserve policy change after the election? Of the 21 elections
since the Federal Reserve was formed, 11 have seen rate hikes
in the first twelve months after election. Over just the past
50 years, that ratio rises to 8 out of 12.
For a better pictorial
perspective, we've shown a table of all the elections of the
past century and whether a bear market (B) or recession (R) started
in the election year or in the year following. Note that almost
half the recessions of the past century (9 out of 20) began in
the year following a Presidential Election. Considering that
great buying opportunities usually appear after a recession takes
hold, it could make for "exciting" times ahead. We're
already starting on that path for only the 2nd time in a century,
the DJIA has managed to lose over 5% between October 1st and
Election Day.
|
Bear Markets And Recessions |
||
|
Election |
Started |
Started |
|
1900 |
B |
|
|
1904 |
||
|
1908 |
B |
|
|
1912 |
B |
R |
|
1916 |
B |
|
|
1920 |
R |
|
|
1924 |
||
|
1928 |
B/R |
|
|
1932 |
||
|
1936 |
B/R |
|
|
1940 |
||
|
1944 |
R |
|
|
1948 |
R |
|
|
1952 |
R |
|
|
1956 |
B |
R |
|
1960 |
R |
B |
|
1964 |
||
|
1968 |
B |
R |
|
1972 |
B/R |
|
|
1976 |
B |
|
|
1980 |
R |
B/R |
|
1984 |
||
|
1988 |
||
|
1992 |
||
|
1996 |
||
|
B = Bear Market |
||
|
Winning Party and Dow Performance |
||
|
Winning Party |
6 mo post-election |
12 mo post-election |
| Republican: | 11 elections: Dow was higher | 7 elections: Dow was higher |
| 2 elections: Dow was lower | 6 elections: Dow was lower | |
| Democrat: | 6 elections: Dow was higher | 7 elections: Dow was higher |
| 6 elections: Dow was lower | 5 elections: Dow was lower | |
Editor's Note: James Stack is editor of The InvesTech Market Analyst, 2472 Birch Glen, Whitefish, MT 59937, 1 year, 17 issues, $190. Visit the Web site at www.investech.com.
