From the time he was elected president in 2016 through his failed campaign for reelection, Donald Trump invoked the stock market as a report card on the presidency.
The market loved him, Trump said, and it hated Democrats, particularly his opponent, Joe Biden. During the presidential debate in October, Trump warned of Biden: “If he’s elected, the market will crash.” In a variety of settings, he said that Democrats would be a disaster and that a victory for them would set off “a depression,” that would make the stock market “disintegrate.”
So far, it hasn’t turned out that way.
To the extent that the Dow Jones industrial average measures the stock market’s affection for a president, its early report card says the market loves Biden’s first days in office considerably more than it loved those of Trump.
Biden would get an A for this early period; Trump would receive a B for the market performance during his first days as president, though he would get a higher mark for much of the rest of his term.
From Election Day through Friday (NZT), the Dow rose about 26%, compared with 14% for the same period four years ago. Amid signs that the United States is recovering briskly from the pandemic, early returns for Biden’s actual time in office have also been exceptional. The stock market’s rise from its close on Inauguration Day to its close on Thursday marked the best start for any presidency since that of another Democrat, Lyndon Johnson.
For those too young to remember Nov. 22, 1963, Johnson was sworn in as president that afternoon after President John Kennedy was assassinated in Dallas. Measuring stock market performance from the end of the day they were all sworn into office allows us to include Johnson as well as Theodore Roosevelt, who became president on Sept. 14, 1901, after President William McKinley died of gunshot wounds.
The Republican Party has long claimed that it is the party of business, and that Republican rule is better for stocks. But the historical record demonstrates that the market has generally performed better under Democratic presidents since the start of the 20th century.
Overall, the market under President Biden ranks third for all presidents in a comparable time in office since 1901, according to a tally through Thursday (the Biden administration’s 109th day) by Paul Hickey, a co-founder of Bespoke Investment Group.
These are the top performers:
— Franklin Roosevelt, inaugurated March 4, 1933: 78.1%.
— Johnson, inaugurated Nov. 22, 1963: 13.8%.
— Biden, inaugurated Jan. 20: 10.8%.
— William Taft, inaugurated March 4, 1909: 9.6%.
Note that three of the top four — Roosevelt, Johnson and Biden — were Democrats. That fits an apparent pattern. Since 1900, the median stock market gain for Democrats for the start of their presidencies is 7.9%; for Republicans, only 2.7%.
By contrast, the Dow gained 5.8% in Trump’s first days as president. That was a strong return for a Republican, but not quite up to snuff for a Democrat.
Now consider longer-term returns — how the Dow performed over the duration of all presidencies, starting in 1901. Again, the market did better under Democrats, with a 6.7% gain, annualized, compared with 3.5% under Republicans.
Using this metric, the Trump administration looks much better, placing fourth among all presidencies.
These are the annualized returns for the top-ranking presidents:
— 25.5% under Calvin Coolidge, a Republican, in the Roaring Twenties.
— 15.9% under Bill Clinton, a Democrat.
— 12.1% under Barack Obama, a Democrat.
— 12.0% under Trump.
That’s an extraordinarily good market performance under Trump, when you recall that it includes the stock market collapse of late February and March last year as the world reeled from the coronavirus.
The market recovered rapidly once the Federal Reserve jumped in on March 23, 2020, and in response to emergency aid programs enacted by Congress. But neither the market, nor the economy, nor the pandemic improved sufficiently in 2020 to win Trump another term.
As for Biden, he is undoubtedly benefiting from the upward trajectory in the economy and the markets that started under his predecessor — much as Trump benefited from the growing economy bequeathed him by Obama.
It doesn’t always work that way. In the Great Depression, the market roared in Franklin Roosevelt’s first 100 days. He offered a hopeful contrast — and a stark break — with his immediate predecessor, Herbert Hoover, who presided over what was then the worst stock market crash in modern history. During Hoover’s four years in office, the Dow lost 35.6% annualized, by far the worst performance of any president.
The market’s recent boom can be easily explained. Back in July, I cited an investment analysis that suggested the stock market might perform quite well in a Biden presidency, despite Trump’s claims to the contrary. Those factors included more vigorous and efficient management of the coronavirus crisis, which would promote economic recovery and corporate profits; generous fiscal stimulus programs, with the possibility of colossal infrastructure-building; a return to international engagement accompanied by a reduction in trade friction; and a renewal of America’s global climate-change commitments.
So far, that analysis is holding up. But will it lead to strong returns through the Biden administration?
I have no idea. Alas, none of this tells us where the stock market is heading. All we know is that it has risen more than it has fallen over the long run, but has moved fairly randomly, day to day, and has sometimes veered into long declines. Another decline could happen at any time, regardless of what any president does.
The only approach to investing I’d actively embrace is passive: using low-cost stock and bond index funds to build a well-diversified portfolio and hang on for the long run. And I’d try to ignore the exhortations of politicians, especially those who would tie their own electoral fortunes to the performance of the stock market.
Written by: Jeff Sommer
© 2021 THE NEW YORK TIMES
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