Sunday, September 04, 2016

Calvin Coolidge number 1?

The facts are inescapable: The Obama years have been among the best of times to be a stock investor, going all the way back to the dawn of the 20th century.

Consider that had you been prescient enough to buy shares of a low-cost stock index fund on Mr. Obama’s first inauguration day, on Jan. 20, 2009, you would now have tripled your money. Stock market performance of this level has rarely been surpassed.

Yet this performance has not been as widely celebrated or appreciated as past bull markets have been, nor is it a major issue in this year’s presidential campaigns. The main reason may simply be that the current bull market is suspect because it came after one of the worst declines in stock market history.

“Politicians almost seem embarrassed to talk about the stock market,” said Paul Hickey, co-founder of the Bespoke Investment Group. “It’s not a popular thing right now. But when you look at it, the record of the market under Obama is kind of incredible.”

Buying stock wasn’t the obvious thing to do when Mr. Obama took office. The United States was still in the grips of the most severe economic downturn since the Great Depression, and the Dow Jones industrial average had already declined 34 percent over the previous 12 months — and it was still dropping.

People were fleeing the stock market. Many of them never returned and so never benefited from the last seven and a half years of rising asset prices. Federal Reserve data and Gallup poll data both indicate that direct and indirect stock ownership by American households is lower than it was at the beginning of President Obama’s first term in office.

I asked Mr. Hickey to run the historical numbers, and he found that since 1900, the Obama presidency has so far been the third best for stock investors. Using the Dow Jones industrial average, market performance has been better only during the presidencies of Calvin Coolidge, a Republican, in the Roaring ’20s; and Bill Clinton, a Democrat, from 1993 to early 2001, years that encompassed the tech bubble.

The market under President Obama has risen 11.8 percent, on an annualized basis, without dividends. That compares with 25.5 percent for President Coolidge and 15.9 percent for President Clinton. It exceeds the Dow’s performance for everyone else, including three Republicans who were known for being pro-business and for tenures that coincided with strong stock markets: Ronald Reagan, with 11.3 percent; Dwight D. Eisenhower, with 10.4 percent; and George H. W. Bush, with 9.7 percent.

It’s also noteworthy that since 1900, the market has performed better under Democrats, with a 6.7 percent annualized gain for the Dow, compared with a 3 percent gain under Republicans.

That said, there are two obvious reasons for the market’s stellar performance in the Obama years.

One is simply that, from a stock market standpoint, Mr. Obama had fortuitous timing. The market and the economy were already in such bad shape by the time he arrived in office that any signs of recovery were likely to result in a market rebound. Stocks did relatively well during much of Franklin Delano Roosevelt’s tenure, for example, partly because they had done so badly during Herbert Hoover’s presidency at the start of the Great Depression.

The second crucial factor is that the Federal Reserve, which the president does not control directly, embarked on an extraordinarily accommodative monetary policy, starting even before Mr. Obama took office. On Dec. 16, 2008, for example, one month after the presidential election, the Fed brought short-term rates sharply lower, close to zero.

Fed interest rate policy may be the single most important factor behind the stock market boom. And even if Mr. Obama does not control the Fed, he did reappoint Ben S. Bernanke as Fed chairman in August 2009. In October 2013, the president appointed Janet L. Yellen as Mr. Bernanke’s successor. Under both, the Fed has held interest rates very low, which is helping to buoy the stock market and may be affecting the presidential election, as Ned Davis Research suggests in a recent note to clients.

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