We Can All Relax… Maybe Not
Today President-Elect Barack Obama held his first press conference since the election on November 4th. This followed a meeting with his economic advisors the purpose of which was to solidify a strategy to right the U.S. economic ship.
Ah! Now that Obama is on the job we can all relax. Well, not quite. In Obama’s opening statement he said, “We are facing the greatest economic challenge of our lifetime.” Although Obama’s statements were strong, his speech seemed mainly aimed to temper expectations of what he can do as the incoming President. In answering a reporter’s question, Obama said as President his chief goal will be to restore confidence in the market and get people working. Unfortunately, in the President-Elect’s first time out, he fell short of calming the markets. The Dow Jones fell 100 points during his 18-minute press conference.
Are Democrats Good For The Market?
The market’s drop was understandable. The bi-partisan rhetoric dubs Obama “the-most-liberal-senator”. According to Karl Rove, he out-Democrats most Democrats. John McCain picked up this “too liberal” stance at the end of his campaign. The purpose of which was to equate Democrats as being bad for the economy and the stock market. Of course there are those who buy into this, but is it true?
In a recent New York Time article, the returns of the stock market are plotted over an 80-year period, according to the political party in office. The results? The market does better under Democratic Presidents. Under Democratic administrations the average return for the S&P 500 since 1929 was 8.9% and 0.4% under Republican administrations. [click image for larger view]
Obama will be coming into office with a Democratic House and Senate as well. I have heard the talking heads on stock market television shows say this too is bad for returns. Again, the evidence does not support this view. According to the research conducted by Wharton professor, and stock market historian, Jeremy Siegel,
“…a Democratic president and a Democratic Congress? Well, Siegel’s research shows that such a combination has generated annualized returns of nearly 14% since 1948. That’s more than 4 percentage points better than under a GOP president and GOP Congress, and more than 3 percentage points better than under a GOP president/Democrat-controlled Congress.”
Here is the dirty little secret. The party that is in power probably has only a slight effect, if any at all, on the trajectory of stock market returns. Stock markets are like living organisms and are affected by many interlacing influences. So the best an investor can do is to invest consistently no matter who sits in the oval office.