Which Candidate(s) Can Help The Market The Most?

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By Gary Alexander

“Happy Days Are Here Again. The Skies Above Are Clear Again
Let us Sing a Song of Cheer Again. Happy Days Are Here Again.”

-- A 1929 song given new meaning in 1932

During this week in 1932, stocks soared following the nomination of Franklin Delano Roosevelt and the playing of “Happy Days Are Here Again,” raising the spirits of a depressed nation. Ironically, that song was first recorded on Black Tuesday (October 29, 1929) by the Casa Loma orchestra in the Okeh studios in Union Square (NYC), about two miles north of where the stock market was crashing on Wall Street.

During the week of July 11-15, 1932, the Dow rose 10.3%, from its absolute low of 41.22. What’s even more amazing is that the Dow rose over 80% in less than seven weeks, from July 11 to August 26, 1932. That was the beginning of the strongest surge in market history, up 372% in four years and eight months.

Can it happen again? Below, I’ve listed the four Presidents under whom the Dow Jones Industrial Average (DJIA) at least tripled during their terms in office. The first in time was Calvin Coolidge, who was in office only five years and seven months following the death of Warren Harding. Under Coolidge (and the first six-month stretch under Herbert Hoover), the Dow escalated 344%. But the biggest gain in history came from the absolute bottom on July 8, 1932, the week after FDR was nominated in Chicago.

Who Was the President When the Dow Tripled Table

*Franklin D. Roosevelt was nominated July 1, 1932, causing the market to start rising in anticipation of his victory.
**Coolidge was President from August 2, 1923 to March 4, 1929; the last six-months’ gain came under Hoover.
Data source: Stock Traders’ Almanac, using the Dow Jones Industrial Average (DJIA) for consistency.
The Obama bull market is missing from this list because the DJIA’s greatest gain since 2009 was 180% and it took over six years to develop. The DJIA rose from a low of 6,547 on March 9, 2009 to a 18,312 peak on May 19, 2015.

The Coolidge and Roosevelt gains contain asterisks because they included overlapping months under Hoover, who presided over the greatest stock market crash in history, down 89% from 1929 to 1932.

Dow Jones Industrial Average Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Coolidge and FDR are ancient history, so we must turn to the Reagan and Clinton administrations to learn why stocks rose so strongly and consistently during the bulk of their administrations, from 1982 to 2000.

The Stock Market Loves “Gridlock” (Separation of Powers)

The biggest common denominator between the Reagan and Clinton eras had to do with an adversarial Congress of the opposing Party for most (Clinton) or all (Reagan) of their eight-year terms. Also, both men were positive and personally genial, masters of debate and compromise. Our current and any future presidents would do well to study how Reagan worked with the opposing Speaker of the House, Tip O’Neill, and Clinton worked with the opposing Speaker, Newt Gingrich, to hammer out compromises.

Ronald Reagan constantly faced a hostile Democratic Congress which controlled the House of Representatives for 40 straight years (1954 to 1994). In the more recent case of William Jefferson Clinton – a centrist Democrat – the market languished during his first two years, when he had a compliant Democratic Congress, but the market began its strongest rise in 1994 after the Republican Revolution.

Specifically, the Dow rose from 3,242 when Clinton took office in 1993 to 11,723 at its peak, with no sustained crash until his final year in office (2000). However, the Dow remained under 4,000 during Clinton’s first two full years in office. It was trading at 3,830 on November 8, 1994, when a Republican majority was swept into Congress. So 93% of the Clinton gains came after 1994. Who gets the credit? A Democrat President or a Republican Congress or both? That may depend on your party bias, but since all of Reagan’s gains and 93% of Clinton’s gains came under “gridlock,” a division of powers is bullish.

Lower tax rates also helped, especially during the Coolidge and Reagan administrations, but there were similar tax cuts under Kennedy/Johnson in 1963-64 and George W. Bush in 2003, each followed by stock market booms. Here are the four tax-cut decades and the maximum stock market gains in those decades:

Major Bull Markets Table

Maybe we can live with today’s high personal income tax rates, but one tax that remains too high is the corporate tax. America currently has the highest corporate tax rate in the world at 39.1%, causing many corporations to report their taxes overseas and store their cash abroad. Politicians malign them for this, but high taxes are counter-productive. We could raise more revenues by lowering corporate tax rates.

Corporate Tax Rates in 2020 Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Our choice appears to be pretty dismal for the two major Parties, but the Libertarian Party has nominated their most mainstream ticket since its founding – two governors elected and re-elected as Republicans in traditionally Democratic states, Gary Johnson (New Mexico) and William Weld (Massachusetts). But Johnson and Weld have no chance of winning if they are barred from the presidential debates. Therefore, the best realistic hope is to elect the least frightening candidate – either Donald Trump or Hillary Clinton.

This year’s conventions run back to back in the next two weeks (July 18-21 for Republicans in Cleveland and July 25-28 for Democrats in Philadelphia). As usual, we already know who the nominees will be, so the coronation is a tiring four-day ceremony of revolving podium time before we “Let the Games Begin!”

From the weight of historical evidence, it seems to me that the most market-friendly outcome of the 2016 election would be a Hillary Clinton presidency and a Republican Congress led by a Speaker like Paul Ryan, who is willing to work with the President on essential moves, like lowering the corporate tax rate.

The market doesn’t like one-Party domination. The market loves our Constitutional separation of powers.

Disclosure: *Navellier may hold securities in one or more investment strategies offered to its clients.

Disclaimer: Please click here for important disclosures located in the "About" section of the Navellier & Associates profile that accompany this article.