The Market Magic of Democrats vs GOP Presidents

Jim Mcteague discusses the surprising correlation that Democratic Presidents have had with outperforming economy and stock markets versus Republican Presidents.

He points out that Real GDP growth between 1949 and 2011 was 4.43% under Democratic presidents, while the average growth rate has been 2.43% under Republicans.

As we are so fond of reminding the innumerate masses, however, correlation does not equal causation:

Gripe as you may about President Obama and the economy, he’s been good for stocks. And if history is a guide, he’ll be just as good if re-elected. Dozens of research papers have concluded that the stock market performs noticeably better during Democratic administrations than it does during Republican ones. No one can explain exactly why this is so . . .

Market professionals have multiple theories about a president’s impact on stocks. Asset manager Barry Ritholtz, author of the highly regarded blog “The Big Picture,” says it’s a combination of luck along with a president’s response to economic circumstances.

“That is what separates the great economies from the middling ones. Look at the circumstances that met FDR, Clinton and Reagan,” he says. They all had big challenges, and met them with appropriate responses.

“Ronald Reagan had the luck to come into office in year 14 of a 16-year bear market; he also had as Fed Chief Paul Volcker, who forced a wrenching recession early in his term. But Reagan’s response to those circumstances—significant tax cuts and federal spending followed by gradual tax increases—helped add up to a booming economy,” say Ritholtz.

The whole article is worth a read.

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Previously:
Presidential Blame & Credit (November 22nd, 2011)

Source:
Democratic Market Magic
JIM MCTAGUE
Barron’s DECEMBER 3, 2011  
http://online.barrons.com/article/SB50001424052748704101304577038140162880680.html

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