How Does Wall Street's Obama-Era Rally Stack Up In History?
As President Barack Obama officially kicks off his second term in the White House, equity investors are hoping stock prices repeat their performance during his first four years.
Bouncing back from the Great Recession, the Dow Jones Industrial Average soared 71.7% from January 20, 2009, until Friday, the second best performance under a presidential first term since FDR in 1937, according to Dow Jones.
When Obama took the oath of office, the stock market was severely beaten down, trading at decade lows due to the economic chaos caused by the worst financial crisis since the Great Depression.
Stock prices initially tumbled on his watch, dropping another 18.6% to as low as 6469 in March 2009 as investors feared another depression.
Eventually, the selling stopped as the government stood behind big banks and the Federal Reserve opened its easy-money spigot, kicking off a bull run that has lifted the Dow an incredible 113% through this week.
American Express (NYSE:AXP) and Home Depot (NYSE:HD) were the best blue-chip performers during the first four years of the Obama Administration, surging 251% and 182%, respectively.
Just two members of the Dow lost ground under Obama: aluminum maker Alcoa (NYSE:AA) and tech giant Hewlett-Packard (NYSE:HPQ), falling 4.5% and 51.8% respectively.
While administrations may take credit for the performance of the stock market, it’s important to remember equity prices are often determined by economic cycles, geopolitical events and central-bank policy.
First-Term Successes and Failures
Still, the Dow’s 71.7% run during Obama’s first term looks especially good when compared with a 1% decline during the first four years under President George W. Bush that left the blue chips at 10471 in January 2005.
President Clinton’s first term enjoyed the greatest amount of stock market prosperity in the modern era as the Dow Industrials surged 111% to 6844 in January 1997.
That impressive rally, fueled by the inflating dotcom bubble, was the best four-year presidential term performance since the blue chips skyrocketed 245% in President Franklin Roosevelt’s first term to 185.96 in 1937, according to Dow Jones.
First presidential terms have mostly seen more modest performance in recent decades, including a 45% gain during President George H.W. Bush’s only term, a 29% increase between 1981 and 1985 under President Reagan and a 0.87% contraction under President Carter.
President Hoover presided over the ugliest presidential term for stock prices: the Dow plummeted 83% from March 1929 until March 1933 amid the market crash of 1929 that set off the Great Depression.
Encore Performance?
So how will Obama’s second term turn out for investors? History shows that most presidents who were re-elected have seen the markets rise.
In fact, the 24% slide for the blue chips during Bush 43’s second term amid the housing slump and financial crisis was the first such occurrence since a 24% decline during President Nixon’s scandal-shortened second term.
Stocks also dropped 30.5% during the second of four terms for FDR and 21% amid President Wilson’s second stint in the White House.
Even taking into account those ugly four-year periods, the Dow has rallied an average of 24.2% in the 12 second terms since 1901, according to FOX Business calculations of Dow Jones data.
Reagan enjoyed the best second term market performance of the modern era, witnessing the Dow Industrials soar 77% to 2235 in January 1989. That was second only to the benchmark index’s 155% surge under President Coolidge through March 1929.
2013 And Beyond
For the market to come close to those impressive returns over the next four years, the global economy would seemingly need to escape its slow-growth speed.
Still, some observers believe the stock market’s list of concerns has been chopped in recent months, especially with the fiscal cliff put off, Europe’s debt mess being cleaned up and a relatively quieter geopolitical tone in the Middle East.
Investors’ wall of worry at the start of 2013 “doesn’t look as high as over the past three years,” Ed Yardeni, president of investment advisory Yardeni Research, wrote in a note. “Fiscal policy is likely to remain worrisome over the rest of the year. Yet the stock market is still climbing the wall.”