The US election has entered the countdown, and the market is currently speculating on who will enter the White House by Biden and Trump and . Some investors believe that this will have a decisive impact on the US economy and the direction of the US stock market.
Traditional view holds that Democrats are often bad for the economy and stock markets due to their huge government tendencies, while conservative Republicans' fiscal measures are good for the stock market. But if you trace back the data since the end of World War II, it will be found that there is no inevitable connection between the two. Jeremy Siegel, a finance professor at the Wharton School of the University of Pennsylvania, said that the stock market does perform better under the leadership of the Democrats than under the Republicans. This is a well-known fact, but it does not mean causality. From 1952 to June 2020, the annual actual stock market return during the Democratic Party was 10.6%, compared with 4.8%.
There are still three months left before the 2020 election, and some investors are beginning to worry about the advantages and disadvantages of Trump and Biden's election. If the Democrats win, it almost certainly means a pullback in Trump's massive corporate tax cut policy (not good for the stock market), but the additional economic stimulus (the market obviously likes, despite the deficit impact) and a sluggish international relations will be a huge positive.
Which presidents provide the best stock return?
According to Siegel, author of the 1994 investment classic "Long-term Stocks", Wall Street 's obsession with politics is largely misplaced: "Bull and bear markets come and go, and trends are obviously related to the business cycle than the president's influence." In a sense, the current market environment and the threats faced by George W. Bush after 2001 (the pandemic versus the 9/11 event), the civil unrest that plagued Johnson and Nixon administrations, and the trade tensions with Japan in the 1980s.
To study the relationship between the president's behavior and stock trends more carefully, Forbes analyzed their stock market performance, including dividends, which can be traced back to the Harry Truman era. By using data from the National Bureau of Economic Research (NBER), it is also clear how many expansions and recessions each president begins during his term. In some cases, such as Bill Clinton's presidency, it was one of the most impressive economic booms (and bull markets) in U.S. history, so no expansion is seen. The report also includes the ratio of total federal debt to GDP in the last year of each presidential term.
The best stock with the highest cumulative return rate is William Clinton, nearly 210%. The worst is George W. Bush, -40%.
So far, uncertainty has been the biggest market disruptor. For example, in September 1955, when Eisenhower suddenly had a heart attack after a golf outing, the stock fell 6.5% in a day. When Kennedy was assassinated in November 1963, it immediately dropped 3%. In both cases, the stock market will recover quickly. In addition to market volatility, investors can rest assured that buying and holding are the best results in the long run. In January 1945, an investment of $1,000 in 1,000 large U.S. stock indexes had a compound annual yield of 11%, which would reach $2.3 million by the end of 2019.
Truman (Democratic Party)
After the outbreak of World War II, production during the war was stable and job opportunities decreased accordingly. As a result, Truman faced a recession and a bear market early in his term. "The economy is oversupply because too many people are returning from the war and unable to provide jobs, and this is almost inevitable and we will fall into recession."
The economy rebounded rapidly as consumer and corporate confidence recovered, but Truman then faced another recession (although briefly) after implementing fair-trading economic reforms in 1949 that raised minimum wages and tried to safeguard equal employment rights.
Eisenhower (Republican)
Although the popular Eisenhower strives to ease tensions in the Cold War, the United States still experiences anxiety during his tenure. "Many people say how great and boring the Eisenhower era was, but I don't agree with it. The United States is petrified. Eisenhower experienced three recessions during his two terms—at the beginning, the middle and the end of his term. The recessions in 1953 and 1958 were largely related to the Fed's stricter monetary policy, while another recession began in 1960, when the Fed doubled interest rates since 1958.
Kennedy (Democratic)
John F. Kennedy (John F. Kennedy) was elected in a thrilling campaign. When he took office, the economy remained sluggish and the unemployment rate was still as high as 6.8%. Stowal said the bear market during his tenure was “just triggered by fierce competition between Kennedy and U.S. steel company on price.” Wall Street did not like the government to decide what private companies could do. Before his assassination on November 22, 1963, Kennedy launched a bold domestic plan near the end of his term, which included cutting income and corporate taxes to stimulate economic growth.
Johnson ( Democratic Party)
On the day of Kennedy's assassination, Johnson was sworn in on Air Force One and then returned to Washington. The Texan acted quickly to pass President Kennedy's tax cuts and civil rights bills. Stocks entered a bear market in 1966 with inflation in and interest rates rising, and social unrest caused by the civil rights movement. The recession was avoided after the Federal Reserve panic and lowered interest rates. The second bear market occurred in 1968, when protests in the Vietnam War were heating up. Stark said: "The valuation and speculation issues on Wall Street were similar to those in the late 1990s. "Hot stocks including IBM, Texas Instruments, Gulf Western, Polaroid and Xerox led the craze. While Johnson didn't experience a formal recession, "he did create problems for the next administration because of the idea of 'guns and butter' paying for the Vietnam War," and "Great Society" Society’s social project.
Nixon (Republican)
At the end of Johnson’s term, the currency tightening caused a slight recession from 1969 to 1970 after President Nixon took office. The U.S. economy was plagued by stagflation, namely high inflation, slow economic growth and high unemployment. In 1970, the year before the United States was completely out of the gold standard, Nixon freezes wages and prices in response to inflation under executive orders. “This is a very unrepublic thing. Soon after, things went against their wishes. "Sigel pointed out. In 1973, the oil embargo in Arab countries caused oil prices to soar, and the Watergate jeopardized Nixon's presidency. Between January 1973 and October 1974, U.S. stocks plummeted, the S&P 500 fell nearly half, accompanied by double-digit inflation, and a 16-month recession that began in the fall of 1973.
Ford (Republican)
Ford presided over the last two years of Nixon's second term, inheriting many of the economic problems of the former president. Stagflation It lasted until the Ford position, but the stock market rebounded in 1975. "It was a short term, and from a historical perspective, it wasn't very obvious for investors," Stark said.
Carter (Democratic)
In terms of the economy and stock markets, the peanut grower and former Georgia governor did not have a easy time during his tenure. Inflation continued to plague the U.S. economy, reaching double-digit levels by 1979. Stark said: "It was a very tense time for investors and the Fed." "He added that 1980 was the "craziest year in currency history." The recession began in January, but ended in July 1980 after the Fed reversed policies and lowered interest rates.However, a year later, shortly after Fed Chairman Paul took office, a more severe recession hit
Reagan (Republican)
Stark said that during Reagan's first term, the United States fell into another recession - the longest after the war, but the recession was long enough to "break the roots of inflation." The harsh drug against inflation was high interest rates, which ultimately led to U.S. Treasury yields exceeding 16% in August 1981. The stock market bottomed a year later, and the United States emerged from the recession in November 1982. Stark added that when the economy rebounded, people inside and outside Wall Street were surprised that inflation had not risen. This is largely due to Fed Chairman Volcker, who maintained tight monetary policy by raising interest rates. It was a period of victory
Bush Sr. (Republicans)
Under the leadership of the 41st President President Bush , the U.S. economy fell into another recession in 1990, a month before Iraq's invasion of Kuwait. Oil prices soared, causing the market to plummet. Stark said the Fed has been raising interest rates to deal with inflation. At the end of Bush's term, the economy slowed down, accompanied by the bursting of a large commercial real estate bubble. Soon after, James Carville, the campaign leader of Bill? Clinton , threw out the motto: "Idiot, the problem lies in the economy."
Clinton (Democratic Party)
Stark said that Clinton promised to revitalize the economy during the campaign, but he "inherited the ideal economic conditions" to make the stock market boom in the 1990s and reduce inflation to below 3%. Clinton passed a congressional tax increase early in his first term, and the Federal Reserve raised the federal funds rate from 3.25% in January 1994 to 5% in February 1995. Economic growth has cooled down and inflation has been curbed. “By limiting inflationary pressures, it really made possible the first decade-long expansion in Wall Street history,” Stark said. (Although technically, expansion began under the leadership of his predecessors.) The rapid development of technology, including the birth of companies like Amazon and Google, helped drive stocks to record all-time highs, but also created a huge bubble. Fed Chairman Greenspan (Alan Greenspan) warned of “the irrational boom on Wall Street” in 1996, years before the bursting of the Internet bubble, but the Fed did not respond quickly enough. The Nasdaq bubble and subsequent collapse led to a bear market in 2000.
Bush Jr. (Republican)
When the Bush family's second president took office, the stock market has not yet recovered from the collapse of the Internet bubble. “He couldn’t make the right decision due to the bad timing and the stock market bubble that inherited Clinton,” Stowal said. “Bush was ended by a bear market and a recession.” As Greenspan and the Fed methodically raised interest rates again between 2004 and 2006, the economy finally began to recover. But as Bush's second term approached the end of his term (interest rates above 5%), the Fed began to sharply cut rates in , laying the foundation for the real estate bubble. Stark noted: "This created an environment for creating esoteric mortgages... and eventually became the promoter of the Great Depression of ." At the end of Bush's term, the U.S. economy was in the abyss of a financial crisis, and historic institutions such as Bear Stearns and Lehman Brothers disappeared. "We don't have an economic president who is worse than President Bush, at least not since Hoover," said Charles Lemonides, chief investment officer of ValueWorks. "We have no economic president who is worse than President Bush, at least not since Hoover."
Obama (Democratic Party)
After Obama took office, the United States is ready to rebound from the abyss of the Great Depression. By the end of Bush's term, interest rates had been sharply lowered, the Federal Reserve expanded its balance sheet by injecting large amounts of capital into the economy, and Congress also passed a massive bailout plan. By mid-2009, the United States had recovered from the financial crisis, laying the foundation for the longest bull market in history in the next eight years. The long expansion period during Obama's tenure marked a surge in technological innovation, a decline in earnings and interest rates, which in turn caused the stock market to soar to new highs.
Trump (Republican)
When Trump was elected, the United States had been the longest economic recovery in history for eight years. Stocks jumped after he won the 2016 election as the market hopes the Republican president will lower tax rates and relax business regulations. Although Trump's tax cuts did deliver results, Stovall said the markets did not perform at the best in history. International tensions and the pandemic have put a lot of pressure on the market. As confirmed cases caused by the epidemic continue to increase, most parts of the United States are dealing with lockdowns, so the United States fell into an economic recession in February 2020.
summary
Through the above comparison, we can find that affecting the stock market is policy and inflation, and of course, more importantly, the economic cycle.
For example, Republican Eisenhower has experienced three economic recessions during his term due to the Federal Reserve's rate hike. Kennedy drove the economic recovery through a series of tax cuts at the end of his term and pushed the stock market to rebound, which is the same as Trump's tax cuts. (Expanding stimulus measures drive stock market rebound)
. When the stock market entered a bear market, Johnson of the Democratic Party successfully avoided further economic recession during his term through the Federal Reserve's interest rate cut. However, the result triggered a high inflation rate during the Nixon period (the oil crisis is also the key reason for pushing up inflation). Nixon was forced to freeze wages and prices through executive orders, which caused the S&P 500 to fall nearly half. (Suppression stimulus measures suppress the stock market)
The same situation occurred during the Carter period. In 1980, the Federal Reserve reversed its policy and implemented interest rate cuts, which finally caused the US economic recession to end in July 1980. However, the continued stimulus failed to resolve the severe high inflation situation in the United States at that time, which forced the next Federal Reserve Chairman to suppress inflation through continuous tightening monetary policies (high inflation triggered a tightening of monetary policy to suppress the stock market)
. During the Clinton period, a golden period in US history was achieved by suppressing the inflation rate, but it also led to the emergence of bubbles and caused the collapse of the stock market.
So since the Obama era, the United States is actually continuing its path - boosting the stock market by lowering inflation and increasing liquidity, but as Clinton saw later, the bubble is already big enough, when the key will be pierced. At present, the key trigger is how the Fed's continued huge stimulus triggers high inflation in the economy, which will prompt the Fed to raise interest rates gradually, and then trigger a chain reaction in US stocks. This also understands why the Fed wants to implement the "average inflation target", because if inflation hits the target too early, the time for the bubble in US stocks to burst will also come earlier, which may mean a stock market plunge and an economic recession.
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