Analyst says Obama's good for Wall Street
By John Dorfman
Published: Monday, Oct. 22, 2012, 5:42 p.m.
The stock market has performed better under President Obama than under any president since World War II.
According to my calculations, the Standard & Poor's 500 Index has risen 15.50 percent per year under Obama through Oct. 19. That slightly exceeds the annual rate of 15.18 percent under Bill Clinton, the previous record holder.
No one seems to have noticed this striking fact. And there are a few reasons.
Most rankings of stock-market performance under various presidents cite the cumulative performance for their full tenure. But of course some presidents served more than one term, some exactly one term, and others (John Kennedy, Gerald Ford and Obama to date) less than one. To correct for this, I annualized the stock-market returns.
Many rankings use the Dow Jones industrial average. Mine uses the Standard & Poor's 500, which is a more representative index, comprising 500 stocks instead of 30.
A final reason people might not have noticed the market's strong performance under Obama is that it's an unexpected result. “The market votes Republican,” according to one cliché.
Here is my ranking of compound annualized stock-market price changes under every president since Franklin D. Roosevelt.
• Barack Obama, 15.50 percent annualized through Oct. 19
• Bill Clinton, 15.18 percent
• Dwight D. Eisenhower, 10.92 percent
• Gerald Ford, 10.36 percent
• Ronald Reagan, 10.22 percent
• George H.W. Bush, 9.94 percent
• Harry Truman, 8.31 percent
• Lyndon Johnson, 7.61 percent
• Franklin D. Roosevelt, 7.54 percent
• Jimmy Carter, 6.33 percent
• John F. Kennedy, 5.40 percent
• Richard Nixon, -4.04 percent
• George W. Bush, -6.19 percent
I think most investors would be surprised that Obama and Ford rank as high as they do. Conversely, I think some folks would be shocked that Ronald Reagan and John Kennedy don't rank higher.
Obama is viewed by his opponents as anti-business, and even some of his friends don't rate business savvy as among his strong points. The economic recovery under the Obama administration has been anemic. However, he deserves credit for avoiding panic and bolstering public confidence.
As usual, pundits are parsing the polls to see which stocks would benefit if Mitt Romney wins the presidency and which would do best if Obama retains office. Conventional wisdom says that defense stocks would do better under Romney, and I suspect that is right.
Education stocks are a mixed bag. Obama would probably spend more on public education, which would be good for textbook publishers.
Romney would probably go easier on the regulation of for-profit colleges, several of which are publicly traded.
With his Bain Capital background, Romney might be better for Wall Street stocks than Obama, with his Wall Street bashing rhetoric.
Let's suppose that Obama wins re-election on Nov. 6 and that Republicans consolidate their control of Congress. Based on history, that would be a good combination for the stock market.
According to Ned Davis Research, my favorite market-research firm, the Dow Jones Industrial Average gained 9.63 percent a year on average since 1901 when the party of the donkey ruled the White House and the party of the elephant controlled Congress.
When Republicans dominated both the oval office and the dome, the average gain was only 1.62 percent.
When Democrats were in the driver's seat in both places, the gain averaged 7.25 percent.
And when a Republican president had to deal with a Democratic Congress, gains were 4.32 percent.
If you adjust for inflation, the differences are less dramatic, because Republicans have been stricter inflation fighters. But even inflation-adjusted, Democratic presidents are still a couple of percentage points ahead of Republican ones, in terms of stock market gains.
Using raw numbers, a Democratic Congress is better than a Republican Congress for stocks, 6.02 percent to 3.57 percent. But here, an inflation adjustment flips the results: The real return on stocks has been 2.89 percent under Republican Congresses and 1.59 percent under Democratic Congresses.
Many of my money-management clients would prefer a Republican sweep, because they like the GOP platform of less regulation, less government spending and lower taxes. But an old proverb may apply here: “Be careful what you wish for.”
None of this tells you whom to vote for, nor who will win. But in my view one lesson is clear. Partisans of either party are wrong if they claim their party is always best for the stock market.
In my ranking of presidential performance there are seven Democrats and six Republicans. Four of the top six spots went to Republicans, but so did the two bottom spots.
In the interest of full disclosure, I have contributed $100 to the Obama campaign.
John Dorfman is chairman of Thunderstorm Capital in Boston; email@example.com.
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