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What Does the US Presidential Election Mean for Markets?

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LONDON, September 4, 2012 /PRNewswire/ --


US market performance since 1900: Republicans versus Democrats

Although the Republicans are widely seen as being generally more favourable to business, since 1900, stock markets have actually performed better under Democratic presidents.

Although the Republicans have spent more time in office over the last 112 years, the Democrats have posted an average return over month (0.73% to 0.38%) and average monthly return over the same month a year earlier (8.00% to 6.37%).

Normally one would expect higher returns to come with higher risk but under the Democrats, risk as measured by the standard deviation has been lower based on both monthly (5.22% vs 5.56%) and yearly (20.25% vs 22.13%) volatility.

                                   Months    Total    Avg Ann  Avg Mon
    President          Party       In Office Return   Return   Return
    William McKinley   Republican  20        10.61%   6.36%    0.69%
    Theodore Roosevelt Republican  90        10.96%   1.46%    0.28%
    William Taft       Republican  48        (1.23%)  (0.31%)  0.04%
    Woodrow Wilson     Democratic  96        (7.50%)  (0.94%)  0.12%
    Warren Harding     Republican  29        16.22%   6.71%    0.60%
    Calvin Coolidge    Republican  67        268.60%  48.11%   2.08%
    Herbert Hoover     Republican  48        (83.91%) (20.98%) (2.93%)
    Franklin Roosevelt Democratic  145       201.96%  16.71%   1.00%
    Harry Truman       Democratic  93        88.96%   11.48%   0.75%
    Dwight Eisenhower  Republican  96        111.34%  13.92%   0.84%
    John Kennedy       Democratic  34        22.76%   8.03%    0.68%
    Lyndon Johnson     Democratic  62        24.90%   4.82%    0.43%
    Richard Nixon      Republican  67        (19.72%) (3.53%)  (0.24%)
    Gerald Ford        Republican  29        32.63%   13.50%   1.15%
    James Carter       Democratic  48        (4.08%)  (1.02%)  (0.00%)
    Ronald Reagan      Republican  96        125.13%  15.64%   0.97%
    George H Bush      Republican  48        52.26%   13.07%   0.96%
    William Clinton    Democratic  96        226.75%  28.34%   1.33%
    George W Bush      Republican  96        (18.64%) (2.33%)  (0.13%)
    Barack Obama       Democratic  43        48.22%   13.46%   1.04%
    Total              Republicans 734       332.09%  5.43%    0.38%
    Total              Democrats   617       787.31%  15.31%   0.73%

Table continues

                       Monthly Monthly Mon Avg  Year    Year
    President          Std Dev Ret/Rsk Ovr Year Std Dev Ret/ Rsk
    William McKinley   5.72%    0.12     n/a      n/a     n/a
    Theodore Roosevelt 5.60%    0.05    5.39%    27.68%  0.19
    William Taft       3.75%    0.01    3.98%    27.73%  0.14
    Woodrow Wilson     6.23%    0.02    1.83%    23.35%  0.08
    Warren Harding     4.10%    0.15    8.04%    21.51%  0.37
    Calvin Coolidge    4.74%    0.44   19.73%    16.63%  1.19
    Herbert Hoover     12.65%  (0.23) (24.04%)   34.87% (0.69)
    Franklin Roosevelt 6.92%    0.14   11.48%    33.43%  0.34
    Harry Truman       3.60%    0.21    8.91%    12.73%  0.70
    Dwight Eisenhower  3.42%    0.25   11.85%    16.26%  0.73
    John Kennedy       3.98%    0.17    5.71%    13.95%  0.41
    Lyndon Johnson     3.82%    0.11    5.64%    10.59%  0.53
    Richard Nixon      4.05%   (0.06)  (0.19%)   13.19% (0.01)
    Gerald Ford        5.92%    0.19    8.65%    22.08%  0.39
    James Carter       4.08%   (0.00)  (1.94%)    9.35% (0.21)
    Ronald Reagan      4.92%    0.20   12.90%    19.79%  0.65
    George H Bush      3.96%    0.24   12.67%     9.63%  1.32
    William Clinton    4.09%    0.32   16.46%    12.12%  1.36
    George W Bush      4.18%   (0.03)   1.51%    13.88%  0.11
    Barack Obama       4.80%    0.22    5.42%    20.65%  0.26
    Total              5.56%    0.07    6.37%    22.13%  0.29
    Total              5.22%    0.14    8.00%    20.25%  0.39

How does the current administration stack up?

Dividing the return for each President by the risk gives an indication of how markets have performed under each President. Interestingly, many of the overall more successful Presidencies have also performed well under this measure, while many of the Presidencies widely considered to be less successful find themselves at the bottom of the table.

Interestingly, Presidents Reagan and both Roosevelts find themselves a bit lower on the table than might be expected while the first President Bush had a very strong market performance despite not winning a second term.

In terms of market performance, the first term of President Obama has been very successful, ranking fifth overall and second among Democrats in terms of return relative to risk.

    Calvin Coolidge    Republican  0.44
    William Clinton    Democratic  0.32
    Dwight Eisenhower  Republican  0.25
    George H Bush      Republican  0.24
    Barack Obama       Democratic  0.22
    Harry Truman       Democratic  0.21
    Ronald Reagan      Republican  0.20
    Gerald Ford        Republican  0.19
    John Kennedy       Democratic  0.17
    Warren Harding     Republican  0.15
    Franklin Roosevelt Democratic  0.14
    William McKinley   Republican  0.12
    Lyndon Johnson     Democratic  0.11
    Theodore Roosevelt Republican  0.05
    Woodrow Wilson     Democratic  0.02
    William Taft       Republican  0.01
    James Carter       Democratic  0.00
    George W Bush      Republican (0.03)
    Richard Nixon      Republican (0.06)
    Herbert Hoover     Republican (0.23)
    Average                       0.13

So what does this mean for President Obama's re-election chances? In the chart below, we compare the return relative to risk for first-term presidents that sought re-election. In this table we have only included those Presidents who started their first term by being elected into office. Those who took over mid-term from another President have been excluded.

The results show that in general, incumbents with successful market performance tend to be rewarded with another term while those with particularly poor performance tend to be thrown out of office. The main exceptions were the two President Bushes with the first losing his re-election bid despite a strong market performance and the second winning re-election despite weak market performance.

President Obama's returns to date have been near the top of the Presidential league which normally would suggest market conditions favour re-election.  

    First Term Re-Election Bids       Monthly     Election
                                      Return/Risk Result
    William Clinton    Democrat       0.51        Won
    Franklin Roosevelt Democrat       0.39        Won
    Dwight Eisenhower  Republican     0.34        Won
    George H Bush      Republican     0.24        Lost
    Barack Obama       Democrat       0.22
    Ronald Reagan      Republican     0.13        Won
    Woodrow Wilson     Democrat       0.07        Won
    Richard Nixon      Republican     0.06        Won
    George W Bush      Republican     0.02        Won
    William Taft       Republican     0.01        Lost
    James Carter       Democrat      -0.01        Lost
    Herbert Hoover     Republican    -0.23        Lost

This election is all about the economy and the size of Government

In case there was any lingering doubt, the addition of Rep. Paul Ryan to the US Republican ticket means that the economy and the role of government within it is likely to be the key point of discussion this election. Mr. Ryan has been one of the key figures in the Grand Old Party in the ongoing spending debate.

This election features a clear choice between Republicans looking to lower taxes and cut spending and Democrats who have been in favour of a bigger role for government and selectively raising taxes to pay for programs.

Areas related to this debate that may remain battlegrounds and could impact stocks include support/opposition to Obamacare, energy policy (which includes decisions on whether or not to allow drilling and/or pipelines in areas where there is opposition, and alternative energy investment/subsidies) and defense spending.

The ongoing debt crisis in Europe indicates that the days of funding spending or tax reductions through borrowing is coming to an end in many countries around the world. This leaves the public with a referendum on the question of not only how much government do they want but also how to pay for it.

This clear cut choice could set the trend for government spending for a generation, suggesting that this election may become a major turning point in US history.

20-Year cycles suggest this year could be a big turning point

One of the most glaring questions from the analysis of Presidential market returns is why the first President Bush lost in 1992 when his market performance was so strong. It appears that his bid was caught up in a stronger generational cycle of political change.

Over the last century, a cycle of major shifts in power and policy occurring more or less every twenty years has been playing out. Throughout the twentieth century, these cycles tended to come to a head in election years ending in 2 which coincided with major changes in political direction.

    Election Years Ending In 2
    Year       Result
    1912       Wilson (D) ends 16 years of Republican rule (3 presidents)
    1932       F Roosevelt (D) ends 12 years of Republican rule (3 presidents)
    1952       Eisenhower R) ends 20 years of Democratic Rule (2 presidents)
    1972       Nixon R) elected to a second term
    1992       Clinton (D) ends 12 years of Republican rule (2 presidents)

    Market Performance In Election Years ending in 2 (to Oct 31)
               1 year      6 months    3 months    1 month
               before      before      before      before
    1912       11.11%      0.00%        1.12%       (4.26%)
    1932      (41.90%)     8.93%       12.96%      (14.08%)
    1952        2.67%      4.67%       (3.58%)      (0.37%)
    1972       13.83%      0.10%        3.35%        0.21%
    1992        5.12%     (3.96%)      (4.92%)      (1.38%)
    average    (1.84%)     1.95%        1.79%       (3.98%)

               1 month    3 months    6 months    1 year      2 years     3 years
               after       after       after       after       after       after
    1912       1.11%      (7.78%)     (13.33%)    (13.33%)    (21.11%)     5.56%
    1932      (8.20%)     (1.64%)      26.23%      44.26%      52.46%    127.87%
    1952       5.20%       7.43%        1.86%       2.23%      30.86%     68.77%
    1972       6.60%       4.61%       (3.56%)      0.10%     (10.99%)   (35.50%)
    1992       2.45%       2.60%        6.23%      14.07%      21.14%     47.40%
    average    1.43%       1.05%        3.49%       9.47%      14.47%     42.82%

The results show that in four of the five elections, power changed between parties. In three of the five cases (1932, 1952, 1992), markets rose substantially in the ensuing years. Two of those periods were Democrat wins versus one Republican. The 1912 election was followed by large declines due to the outbreak of World War I but had recovered by the three-year mark.

The one election where the party was re-elected (1972) was followed by the severe 1973-1974 bear market and tremendous political instability.

Considering that we are only four years on from the even worse generational bear market of 2007-2009 and still digging out from it, a repeat of the post-1972 experience should the Democrats win appears unlikely.  

For further analysis on the US election and market impacts, please click  here 

Notes to Editors

CMC Markets is a leading global provider of financial spreadbetting, CFD and foreign exchange (FX). Since Peter Cruddas founded CMC Markets in 1989, the company now services more than 80,000 clients worldwide, who placed approximately 30 million trades last year. With offices in London, Paris, Milan, Madrid, Vienna, Sydney, Tokyo, Toronto, Beijing, Auckland, Oslo, Stockholm, and Singapore, CMC Markets represents clients in over 70 countries.

CMC Markets UK Plc and CMC Spreadbet Plc (collectively known as CMC Markets) are authorised and regulated in the UK by the Financial Services Authority.  For further information on CMC Markets please visit

The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

Written by Colin Cieszynski (Senior Market Analyst at CMC Markets, Canada)


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