What a Democrat in the White House Means to Your Wallet

Includes: DIA, QQQ, SPY
by: Marie Albin

Okay, so your preferred presidential candidate may or may not have won the election on Tuesday, but you have to admit that it is nice to know that we live in a free democracy where opinions can differ and the ruling party can change hands without bloodshed.

So let’s focus on the bright side today. Did you know that the stock market historically performs better under Democratic presidents? Certainly, Wednesday’s nearly 500-point drubbing on the Dow doesn’t exactly bode well. But the data does.

According to the bible on historic stock market trends, Stock Trader’s Almanac, the Dow has posted bigger average returns under Democratic presidents during election cycles since World War II. Since 1953, Democratic presidents have presided over a 9.1% increase in the Dow, while Republicans have seen an 8% increase.

Granted, that’s not a big spread, but post-election years prove to be much better for Democrats and the Dow. The Dow has historically risen 9.7% in a post-election year when a Democrat won vs. falling 1.2% when a Republican took office.

Jeffrey Hirsch, editor-in-chief of the Stock Trader’s Almanac, tells PBS’ Nightly Business Report,

The first year of the post-election year, as we call it, has been better under Democrats. We've had some decent gains. Only Carter had a really bad first year and then Republicans have fared much worse with about a 1 or 2 percent average loss for the post-election year since Eisenhower.

Overall average: since 1953 / Post election year

Republicans: 8.0% / -1.2%

Democrats: 9.1% / 9.7%

source: Stock Trader's Almanac

If history is any indication, the stock market could make some nice gains this year. At least perhaps they will regain some of the losses they’ve experienced over the past year. Of course, I should point out that past performance is no indication of future returns.

Still, data from Ibbotson Associates in Chicago backs up the Stock Trader’s Almanac. From 1926 through the end of August 2008, the S&P 500 rose 9.2% annually after inflation under Democrats compared to a 4.6% increase under Republicans. And that’s not counting the market’s most recent breakdown.

A 2000 study from two finance professors at UCLA, "The Presidential Puzzle: Political Cycles and the Stock Market,” looked at stock market performance under Democrats and Republicans compared to the performance of safer, three-month Treasury bills. Over the 72-year period from 1927-1999, the S&P 500 yielded an 11 percent return a year on average under Democrats versus three-month Treasury bills. Under Republicans, the S&P 500 returned just 2 percent more than three-month T-bills over the 72-year period.

The study also compared the performance of two portfolios during a Democratic and a Republican administration – a “value-weighted portfolio” that ranks all stocks in the index according to their total market value and an “equal-weighted portfolio” that ranks all the stocks the same.

Democrats prevailed again. On average, the value-weighted portfolio returned 9% more under Democrats than Republicans and the equal-weighted portfolio returned 16% more during Democratic administrations over the 72-year period.

So, while the prevailing assumption on Wall Street is that Republicans – with lower taxes and less regulation – are better for stocks, the data says otherwise. Will these statistics hold true for Barack Obama’s presidency?

Regardless of your personal political affiliations, there is unprecedented opportunity in the stock market right now. As Chris said in his article on Tuesday, our focus at Tycoon is always on helping you make money. Dylan, Chris, Teeka, and Ethan have all pointed out potential stock market winners over the past weeks.

In fact, the three Chinese stocks that Chris Rowe mentioned last week are up 30% (NYSE:CEO), 18% (NYSE:PTR), and 10.5% (NYSE:LFC). Five out of the six stocks Teeka Tiwari mentioned in his article last week are up between 12% (NYSEARCA:PUW) and 38% (NASDAQ:ENER). The lone loser is down just 2.7% (NYSE:CVA).

Now is the time for you to start plotting your course for more profits. And if history is any guide, we are in for a good year!