A (liberal) co-worker forwarded this analysis from the NY Times to me - ostensibly to show how the Democrats are better for investors.I thought about it and wondered what the Times might be tying to prove.
So, I figured, if you were studying such trends, why would you choose the S&P Index, and not the Dow? The Dow would seem obvious. It's an old, established index and something all people relate to. Why the S&P? Could it be because, for some reason, the S&P doesn't tell the same story as the Dow?
I decided to pull the historical data for the Dow and do the same analysis, using the Dow. Also, for fun, I decided to add the Coolidge administration. I mean, if we're going to lambast Hoover, let's at least give Coolidge his due. In doing so, I wonder if you'll notice a strange correlation between the Coolidge/Hoover numbers and the Clinton/Bush2 years.
It's kind of interesting the crash after a long, big orgy.Anyway, I used yesterday's (Oct 30) close for Bush 2. And, to make the analysis easier, I chose to average the percentage increase or decrease across the president's time in office (imperfect, but good enough for comparison purposes):
Bush 2 = -1.91% per year (what a difference a couple of weeks make in this market, by January, he could be a net positive (though I don't expect that).
Bush 1 = +11.26% per year
Reagan = +16.9% per year
Nixon/Ford = +2.98% per year (figured Ford's admin was too short)
Ike = +15% per year
Hoover = -20.75% per year
Coolidge = +42.6% per year
Clinton = +28.39% per year
Carter = -.3% per year
Johnson = +5.15% per year
JFK = +6.1% per year (broke up LBJ and JFK because I wanted to see if there was any early or later effect from the JFK tax cuts)
Truman = +10.2% per year
FDR = +16.2% per year
Without Hoover and Coolidge, the average per year increase for Republican administrations is 8.34% per year. For Democrat administrations, it is 10.94% per year. If we include both Hoover and Coolidge in the GOP numbers, it goes up to 9.08% per year. There's a difference, sure, but, not as much as the S&P analysis indicated, and right around 9-10% which is pretty much
what we're conditioned to expect from stocks, irrespective of who is president. For fun, remove Clinton, and the D average is 7.47%.
Some things jump out at me from this analysis:
1. The Coolidge and Clinton years were the absolute best for stocks. Both these periods were marked by tremendous innovation and speculation, and both were followed by down periods.
2. The New Deal years are interesting. In March 1937, stocks peaked at 194, from their starting point for FDR of 53.84. From July 1937, they tumbled downward, bottoming at 92 in April 1942 - a 50% decline in 5 years! Imagine if W had the same performance (he's down 13% in 8 years). But FDR was a wartime president (oops, same for W). They didn't start a steady climb upward until that summer, after the tide had turned in the Pacific War, and the American war machine kicked in. Without WW2, that FDR 16.2% does not happen. In fact, many consider it was only the threat of War that ensured FDR's 1940 victory and 3rd term. The New Deal programs weren't proving so capable of turning the economy around, but a World War was.
3. Clinton's numbers are amazingly good. However, having just lived through the '90's I think we can agree a lot of the wealth and stock market run up was not entirely real. Plus, Clinton, unlike the current Democrat nominee,was a proponent of free trade and cut the capital gains tax. Those two policies alone probably had more impact on investment than any other factors during his 8 years. I give at least half the credit for Clinton's success to Newt Gingrich. In fact, I wonder what this analysis would show us if we did it based on Congressional control????
4. I'm really surprised by the mediocrity of the other D's numbers. I wonder what JFK's would have been had he remained president. He passed the supply-side tax cut that was Reagan's model, and I wonder if his New Society would have been very much different from LBJ's.
5. The analysis you sent showed Carter as a success, economically. This analysis confirms his ineptitude, as well as that of Nixon and Ford (and of the '70's in general)
6. Most of all, I think these number show the economy to be much more cyclical. They also show that the controls put into place during/after the Depression, are working, and have worked, to ease the business cycle and provide a softer landing. I think better understanding and application of monetary policy has helped, too. Lots of Libertarians like to rail at the Federal Reserve, but I think they're largely wrong.
I did check one other thing I had been led to believe, and that was that you could take any 20 year period and stocks would outperform social security (when you use the historical growth rate of SS as 2%). That's true if you qualify the years as after the depression, or, you forswear investing from about 1927-1931. I don't always get to fact check these kinds of things, but just thought this was interesting. The bottom line, to me, is really that the stock market is immune to presidential meddling, which I had been taught in economics class, but, I think it's pretty much true, and a testimony to the solidity of our system. And, it's also a reason why investing part of our social security money in the market is not a bad thing - as long as we avoid another Depression.