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The state of the Stock Market
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| DaveSaenz |
http://slate.msn.com/id/2071929
| quote: | The Democratic Dividend
The stock market prefers Democratic presidents to Republicans. Why?
By Carol Vinzant
Posted Friday, Oct. 4, 2002, at 4:15 PM PT
President George W. Bush inherited the lousy end of the business cycle. The stock market has been falling throughout his entire term, battered by war, a feeble economy, and corporate scandals. Yet this decay still hasn't shaken Americans' faith that Republicans are better for the economy and the market. Poll after poll shows that when Americans divide up the chores of running the country, they tend to think of the economy and stock market as Republican domain and delegate softer issues, like the environment, to Democrats.
But Democrats, it turns out, are much better for the stock market than Republicans. Slate ran the numbers and found that since 1900, Democratic presidents have produced a 12.3 percent annual total return on the S&P 500, but Republicans only an 8 percent return. In 2000, the Stock Trader's Almanac, which slices and dices Wall Street performance figures like baseball stats, came up with nearly the same numbers (13.4 percent versus 8.1 percent) by measuring Dow price appreciation. (Most of the 20th century's bear markets, incidentally, have been Republican bear markets: the Crash of '29, the early '70s oil shock, the '87 correction, and the current stall occurred under GOP presidents.)
According to almanac editor Jeffrey Hirsch, the presidential party figures are among the most significant he's found. If the stock market were random, we'd expect such a result only one-quarter of the time. "I don't know why people are convinced Republicans are good for the stock market," Hirsch says.
Nor does having a Republican Congress help the market. A Democratic Senate showed returns of 10.5 percent (versus 9.4 percent for a GOP upper chamber), and a Democratic House returned 10.9 percent versus 8.1 percent for the Republicans.
When both houses of Congress opposed the president, the return was a stellar 12.9 percent. Libertarians may celebrate this as proof that the market likes gridlock and government inaction. But the market likes steamrollers nearly as much: The S&P performs almost as well—returning 11.8 percent—when the presidency and both houses are held by the same party. The only situation Mr. Market dislikes is what we have now: one house for each party. Those years have a -0.9 percent return.
Republicans are no doubt muttering that that's just the stock market, not the whole economy. But real GDP growth follows the same pattern. Since 1930 (the first year decent data is available), GDP growth was 5.4 percent for Democratic presidents and 1.6 percent for Republicans.
There may be all sorts of explanations for the bias of the economy and the markets toward Democrats. The worst years of the Great Depression occurred under Republican Herbert Hoover, and Democrats got credit for the entire recovery. Democrats had some awfully good streaks of peace and prosperity in the '30s, late '40s, and '90s. These could be chance, or it could be that Democrats more tightly regulate the markets, which gives investors confidence. Democrats are more likely to spread the wealth around through public spending on education or transportation, which may stimulate the economy more broadly. The foundation of recent GOP economic policy—tax cuts—may offer narrower benefits than Republicans claim. High defense spending, another GOP hallmark, may only boost one sector while hurting the whole economy in the form of bigger federal deficits and higher interest rates.
Whatever the reasons for it, this Democratic dividend should encourage the party's 2004 presidential contenders. They have a new slogan to run on: Democrats—the party of Wall Street.
Moneybox thanks economists Susan Woodward and Robert Hall, Ibbotson Associates, and the Stock Trader's Almanac.
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Hmmm. |
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| NeoPhono |
I read your article, but if anything I think it goes to show how little a president or congress has to do with the economy. The economy is based on the business cycle and the average Joe. The government can do things to try and direct the path of the economy, but ultimately it lies in the hands of investors, businessmen and consumers. Outside influences have an impact, such as war, but you would then have to argue if these are controlled by a political party or not. To me, especially in the last ten to twenty years, the two major political parties have become nearly identical in their actions in the government as well as with the economy. I would say that the democrats have merely been lucky enough to be in control during more good times then the republicans.
Some intersting reading:
On stimulus packages
President's role in the economy |
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| rupert |
I dont accept that the government is just a sideline participant. The idiotic policies of the current US administration will lead to disaster, the massive deficit spending does have a market outcome and a very stark one. All those government bonds used to pay for the debt going into tax cuts and increased defence spending have to be bought by people. And the US case its foreigners.
Rather than have a steep post-bubble recession in 2001-2002, the government has spent itself stupid and low interest rates have kept people spending keeping prices up. In the case the low interest rates led consumers in the USA and Australia buying and refinancing houses which in a big picture way is utterly useless capital expenditure. Trade policies and military adventurism create uncertainty in the market. People are already getting reluctant to buy US assets.
And when that trickle becomes a flood. Bang. The stock market will crash or more accurately revert to the statistical average.
For a detailed explanation of why a transcription of an interview with Jeremy Grantham a major institutional investor in the USA
http://ragingbull.lycos.com/mboard/...rd=SPY&read=471 |
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| NeoPhono |
The governement can have an effect on an economy, but those effects are slow, and seen over decades, not year to year. One example is FDR. His "New Deal" tactics may have helped bring us out of the great depression (although I would argue it was WWII, not any of his tactics), and now we sit around as welfare and social security are crashing down upon us. The effects of his actions are seen over a long span of time. As I posted, it can be shown that stimulus packages have no short term effects, and in general, there is no correlation between the actions of a congress or administration and the short term reactions of economy. It is based almost entirely on the actions of a normal business cycle.
BTW, Alan Greenspan and the Federal Reserve Board set interest rates, not any action of a president or congress. |
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| rupert |
| quote: | | BTW, Alan Greenspan and the Federal Reserve Board set interest rates, not any action of a president or congress. |
I am well aware of that. The federal reserve in setting rates has to take into account government policy because it does affect the wider economy.
Eventually the US dollar will completely collapse and the only way to prop up the deficit will be to jack up interest rates to maintain the foreign investment needed to pay for the debt. |
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