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Presidents and portfolios

There’s no question that American presidents can move markets with their remarks — and especially when the leader of the free world has a penchant for tweeting. In the early morning hours of October 2, President Donald Trump tweeted that he had tested positive for COVID-19, and the Dow Industrial Market Futures tumbled nearly 400 points.

There is also little doubt that America is at an unpredictable, divisive time in its political history — one exacerbated by the uncertainty of an ongoing pandemic. The national uneasiness is reflected by wild gyrations in the stock markets, and volatility rules.

Yet, President Trump has consistently cited stock market performance as an indicator of economic vitality. And he’s used it to draw a clear distinction between himself and rival candidate, former Vice President Joe Biden.

“If Biden gets in, this market’s going to crash,” Trump declared in an August 13 interview on Fox Business Network. Pointing to Democrats’ tax plans, Trump also claimed that Biden would “tax this country into a depression like in 1929.” The President reiterated that latter point in the September 29 Presidential Debate with Biden. During Obama-Biden’s two terms, however, the Dow Jones Industrial Average grew 148.3%.

That Obama-Biden mark, it should be noted, was achieved in the eight years after the Great Recession of 2008-2009 and surged from a very low base. Democrat Bill Clinton’s two terms saw the biggest market boom as the Dow gained 228.9 percent. And during his time in office, Republican President Ronald Reagan saw 147.3 percent growth for the Dow – just 1 percent short of the gain during the Obama-Biden years, but most of it coming during his second term.

For sure, Trump’s pro-business economic policies — sweeping tax reform, de-regulation, and America First trade measures — have had a largely positive influence on stock markets, according to most Wall Street observers and wealth managers.

Many of those same observers, however, got it wrong just four years ago. On November 1, 2016, Barclays wrote that the S&P 500 “could potentially fall 11 to 13 percent if Trump wins the election…If (Hillary) Clinton wins, the index could rise 2 to 3 percent.”

One month after Trump’s inauguration, markets gained 4.8 percent and continued a steady three-year climb, gaining nearly 45 percent. But COVID-19 started to wreak economic havoc in February of this year, obliterating nearly all market returns. Since April, however, markets have rallied and through 44 months of Trump’s presidential term, the Dow is up some 40 percent.

Jeff dobbsheadshoit“Although now things are looking better, it’s still a little scary and uncertain for sure with the election,” said Jeffrey Dobyns, president of Tennessee-based Southwestern Investor Group. Uncertainty is the worst thing for markets. Investor sentiment can be shaken by a given president’s comments or actions, causing sudden market swings. But most economists maintain that over the long-term and during a full presidential term, market performance hinges mostly on fundamentals (metrics like earnings per share, price/earnings ratio, return on equity, etc.), as well as the overall health of the general economy.

For example, as U.S. GDP grows — something influenced by presidential administration policies — so usually do stock markets. And this is why during most presidential terms, indices like the Dow will chart new peaks, or record highs — which are often surpassed during the next presidential cycle.

Fact is, markets grow during most all presidential terms notwithstanding other major market-moving happenings, such as major geopolitical events like wars, foreign currency fluctuations, oil shocks, high inflation and more.

But sometimes, putting everything into some sort of historical context can deliver some calm.

Advisors Magazine took a look at the Dow’s historical performance during the first 44 months in office for 10 different presidents, in order to assess them side-by-side with Trump’s latest data through 44 months.

Going back to Eisenhower and including Trump, six Republican presidents were considered and four Democrat presidents. John F. Kennedy and Gerald Ford were excluded because neither served for 44 months. (FYI: The Dow, during JFK’s 34 months grew 15.8 percent and Ford’s 29 months saw 40.6 percent growth.)

 president chart1000x667 cThe average growth over 44 months during four Democrat presidencies since Lyndon B. Johnson is +40.9 percent. Interestingly, that’s just a shade higher than Trump has seen for the same duration. That Democratic average, however, is top-heavily weighted in light of the strong growth during the Clinton and Obama presidencies. Jimmy Carter saw negative stock market growth, presiding during a period of slow economic growth and high inflation, known as ‘stagflation.’ Also in the throes of an energy crisis nearing the end of his term in 1979, the U.S. entered a recession by 1980.

The average market gain during six Republican presidencies since Nixon is +27.4 percent, led strongly by Ike’s 64% and the nearly 40% showings during the Trump and Bush 41 terms. Reagan’s first 44 months saw just a 27 percent market gain. But as Reaganomics kicked in during his second term, helping to end the Carter period of stagflation and jumpstart stronger GDP growth, the market gained nearly +120% during Reagan’s subsequent 52 months in office.

Still, markets have tended to show moderately stronger (about 14 percent more) growth when a Democrat is in the White House.

The key takeaway is that, regardless of party affiliation and when afforded some time – even just 44 months – to implement economic policies, market returns have mostly grown and grown sharply. Consider: the top seven in the above table, Democrat and Republican combined, averaged market gains of +48 percent. Even the laggards – Nixon, Bush (43) and Carter – who saw market downturns or near-zero growth, saw risk-tolerable market performance.

Patience is the key, most financial advisors will argue. And while tweets may be flying fast and furious, investors who let their short-term politics inform their portfolio decisions will usually sacrifice significant returns.

 

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