President Barack Obama hasn’t boasted much about the performance of the stock market during his time in office, but if he were inclined, he could do so with gusto.
The facts are inescapable: The Obama years have been among the best of times to be a stock investor, going all the way back to the dawn of the 20th century.
Consider that had you been prescient enough to buy shares of a low-cost stock index fund on Obama’s first inauguration day, on January 20, 2009, you would now have tripled your money. Sharemarket performance of this level has rarely been surpassed.
Yet this performance has not been as widely celebrated or appreciated as past bull markets have been, nor is it a major issue in this year’s presidential campaigns. The main reason may simply be that the current bull market is suspect because it came after one of the worst declines in stock market history.
“Politicians almost seem embarrassed to talk about the stock market,” said Paul Hickey, co-founder of the Bespoke Investment Group. “It’s not a popular thing right now. But when you look at it, the record of the market under Obama is kind of incredible.” Investors were fleeing
Buying stock wasn’t the obvious thing to do when Obama took office. The United States was still in the grips of the most severe economic downturn since the Great Depression, and the Dow Jones industrial average had already declined 34 per cent over the previous 12 months – and it was still dropping.
People were fleeing the stock market. Many of them never returned and so never benefited from the last 7 1/2 years of rising asset prices. Federal Reserve data and Gallup poll data both indicate that direct and indirect stock ownership by US households is lower than it was at the beginning of Obama’s first term in office.
Wealthy people own stock, of course, but many people of more modest incomes do not. Unlike the days of the internet bubble in the late 1990s or the boom of the 1920s, when everybody seemed to be exchanging stock tips, the market these days is not terribly fashionable.
Yet the market performance record is first-rate.
I asked Hickey to run the historical numbers, and he found that since 1900, the Obama presidency has so far been the third best for sharemarket investors. Using the Dow Jones industrial average, market performance has been better only during the presidencies of Calvin Coolidge, a Republican, in the Roaring ’20s; and Bill Clinton, a Democrat, from 1993 to early 2001, years that encompassed the tech bubble.
The market under Obama has risen 11.8 per cent, on an annualised basis, without dividends. That compares with 25.5 per cent for Coolidge and 15.9 per cent for Clinton. It exceeds the Dow’s performance for everyone else, including three Republicans who were known for being pro-business and for tenures that coincided with strong stock markets: Ronald Reagan, with 11.3 per cent; Dwight D. Eisenhower, with 10.4 per cent; and George H.W. Bush, with 9.7 per cent. Democratic touch
It’s also noteworthy that since 1900, the market has performed better under Democrats, with a 6.7 per cent annualised gain for the Dow, compared with a 3 per cent gain under Republicans. Is it reasonable to conclude that Democratic presidents are better for stock investing than Republicans are? Probably not, especially with party alignments and policy positions in an extreme state of flux this year; even if this were true in the past, it may not be so in 2016 or in the future.
Furthermore, if the direct impact of presidential policy on the economy is debatable, the effects on the stock market are even less clear. It is certainly difficult to demonstrate a strong cause and effect. But Hickey gave it a try: “Democrats spread the money around more than Republicans do, stimulating consumer spending, which is good for the economy and for the stock market,” he said, but that this connection is hard to quantify conclusively.
That said, there are two obvious reasons for the market’s stellar performance in the Obama years.
One is simply that, from a stock market standpoint, Obama had fortuitous timing. The market and the economy were already in such bad shape by the time he arrived in office that any signs of recovery were likely to result in a market rebound. Stocks did relatively well during much of Franklin Delano Roosevelt’s tenure, for example, partly because they had done so badly during Herbert Hoover’s presidency at the start of the Great Depression. Enter the Fed
The second crucial factor is that the Federal Reserve, which the president does not control directly, embarked on an extraordinarily accommodative monetary policy, starting even before Obama took office. On December 16, 2008, for example, one month after the presidential election, the Fed brought short-term rates sharply lower, close to zero.
Fed interest rate policy may be the single most important factor behind the stock market boom. And even if Obama does not control the Fed, he did reappoint Ben Bernanke as Fed chairman in August 2009. In October 2013, the president appointed Janet Yellen as Bernanke’s successor. Under both, the Fed has held interest rates very low, which is helping to buoy the stock market and may be affecting the presidential election, as Ned Davis Research suggests in a recent note to clients.
The financial market research firm’s survey of presidential elections and the stock market since 1900 concludes that (even though voters tend to tire of two-term presidents and their political parties) the kind of market we’ve seen this year is, if anything, auspicious for the incumbent Democratic Party. “The stock market action so far this year is very much aligning up to support an incumbent party retaining the White House,” said Ed Clissold, chief US strategist for Ned Davis Research and a co-author of the note.
The economy, which isn’t strong, is at least not in recession, he said, and the Fed’s monetary policy is expansionary, while fiscal policy is looser than it was during Obama’s first term, which was bedeviled by the “fiscal cliff” budget impasse. He also cited this year’s stock market pattern, which includes a correction – a decline of a little more than 10 per cent – that ended in February, along with a smart recovery. All of that helps to tilt the odds in favour of an incumbent party victory, he said. A major market decline before the election could shift matters, however.
This kind of tea-leaf reading implies that the stock market is affecting the country’s mood and political alignment, even if it’s not being widely recognised. Investors may not give the president any credit for their portfolio returns. But the numbers are straightforward enough, and for those fortunate enough to hold stock, they are heartening: It’s been a splendid market.
The New York Times
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