Presidential Parties And The Stock Market by Dave Dorgan
Is there a relationship between the Presidential party in power and the subsequent performance of the stock market? Before you take a guess, here are the facts.
Conventional wisdom would have one believe that the stock market should perform better under a fiscally
conservative (Republican) US President than under a socially liberal (Democratic) US President. Now that we are in yet another Presidential election year, I wanted to know if the political affiliations of the President had a long-term impact on the stock market's performance. So I decided to look at some historical data.
I looked at how the Dow Jones Industrial Average (DJIA) performed in each four-year Presidential term from 1917 to the present. The emphasis of this study was not on the President in power himself, but on the four-year term of the political party in the White House, regardless of whether a specific President served a full four-year term in office. A President has left office early four times since 1917 - Warren G. Harding and Franklin D. Roosevelt died of illness, John F. Kennedy was assassinated, and Richard M. Nixon resigned. In these four instances, the Vice President who assumed the Presidential office was of the same political party and I made the assumption in each case he was committed to carrying on the policies of his predecessor.
Using this data, I calculated the DJIA's four-year return from the February after the start of the term through the
January that the next term started from 1917 through 1995 (Figure 1). For the sake of this study, I treated President Bill Clinton's current three years as a full term. For my calculations, I used monthly high, low and close data that was generated from daily high, low and close data by Omega Research's TradeStation. Interestingly, over the last 79 years there were 10 Republican terms and 10 Democratic terms, which provided a good dataset for comparisons.