Studying the Manic Behavior of Mr. Market I

This is the first of a continuing series on studying the fluctuations of Mr. Market and possible relationships between various events and the market.

In this article, we review the possible relationship between the Presidential office and various economic factors.  Specifically, we look at returns of large & small cap stocks, inflation, and GDP in relation to Presidential party.  Please be aware that we have done everything we can to keep our personal political views out of this study.  

First we took the period 1927-2003 and jotted down the party of the President in office for the majority of the year.  For example, in 1992 there was a Republican in office, while in 1977 there was a Democrat in office. 

During this period, we found the following:

 

Average

Standard Deviation

GDP Growth

7.3%

6.55%

Inflation

3.7%

3.97%

Return on Large Stocks

13.2%

19.07%

Return on Small Stocks

21.0%

36.62%

We then assumed that since a newly elected President has limited influence in the first year in office and effects of federal governmental policy generally take about 4 years to be seen, a prudent connection would be between a President and the data from 5 years after they were in office.  For example, for President Kennedy’s 1962 year in office, we connected economic data from 1967.  For President Reagan’s 1988 year in office, we connected economic data from 1993.

Having made that assumption, we separated the data between democratic and republican presidents.  The result was rather interesting:

For Democratic Presidents:

 

Average

Standard Deviation

GDP Growth

8.0%

6.53%

Inflation

3.6%

3.74%

Return on Large Stocks

11.6%

17.81%

Return on Small Stocks

17.9%

35.69%

For Republican Presidents:

 

Average

Standard Deviation

GDP Growth

6.7%

6.59%

Inflation

3.7%

4.27%

Return on Large Stocks

14.9%

20.51%

Return on Small Stocks

24.5%

37.86%

Overall, it appears that returns are higher 5 years following a republican President.  Though the standard deviations are also higher, in the case of small stocks, the difference in return (6.6%) is significantly more than the difference in standard deviation (2.17%).  

In addition, GDP growth 5 years following a democratic President was higher than 5 years following republican Presidents.

To refrain from entering into any political debate, we will leave our readers to come to their own conclusions based on this data.


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