It takes a president to spur the stock market

All US leaders since Ronald Reagan have ruled the tides on Wall Street

Photo: Ronald Reagan had a rough start but led the economy to record highs.

All eyes are on the United States as the presidential race seems to be never-ending, even though the poll results have already been reported. Investors are still uncertain who will be the leader of the country. The turmoil accelerated as markets still need predictable direction. The big question has never been Biden or Trump, but having or not having a president in the White House. All US leaders, since Ronald Regan, have spurred the stock market in the beginning of their terms.

Stocks were up 75% at this point in Barack Obama's presidency, amid the recovery from the Great Recession. And they were much weaker under George W. Bush, down about 13%, as stocks remained low for years after the September 11 attacks and the dotcom boom and bust that occurred in the first year of his presidency.

Average economic growth under President Trump has outpaced the growth under Barack Obama, but that does not hold true for all of his recent predecessors.

Over the last six decades or so, history has tended to favour Democratic presidents in terms of economic performance. The country's unemployment rate has been lower at the end of every Democrat's tenure since Kennedy took office in 1961. Ronald Reagan, meanwhile, is the only GOP president since Dwight Eisenhower took office in 1953, who can say the same.

Americans have their own strange and hard to understand way of thinking. At the end of the day, economy rules the presidents, but meanwhile, presidents give that 'scent' of sustainable leadership that has been successful over the years.

But how much do presidents actually impact the economy? Are Democratic policies actually better for domestic growth? Not necessarily, according to a study conducted last year by researchers at Princeton University.

“Democrats would no doubt like to attribute the large growth gap to macroeconomic policy choices, but the data do not support such a claim,” the researchers wrote in a report aimed at determining why the economy tended to post better numbers under Democratic administrations. “If anything, and we would not make too much of small differences, both fiscal and monetary policy actions seem to be a bit more stabilising when a Republican is president - even though Federal Reserve chairmen appointed by Democrats preside over faster growth than Federal Reserve chairmen appointed by Republicans by a wide margin.”

In September 1983, William Raspberry, at the time one of the country's few black columnists, wrote in The Washington Post: “Forget war and peace, forget fairness, forget the federal deficit. None of it matters for this election. The only thing that matters is whether individual voters think their personal finances are more likely to improve under a Mondale administration or a second Reagan term.”

Raspberry predicted the rise of “pocketbook selfishness” after seeing a Washington Post-ABC poll that revealed many voters would put their own interests above those of the nation.

A majority of respondents said that Democratic candidate Walter Mondale was more likely than Reagan to “reduce the threat of nuclear war” and “be fairer to all segments of the population”. They agreed with Mondale's political views and felt the “national economy was getting worse under Reagan”. But they still backed the incumbent. They explained their support by saying that Reagan would ensure they were “better off financially”.

Noting that voters typically explained their choice of candidates as a product of aligned views, Raspberry surmised: “Reagan has made greed an acceptable attitude.”

The Covid-19 pandemic is unlike those other crises in that it started as a global health crisis and led to government-mandated business closures in many states. More than 200,000 people have died in the United States due to coronavirus complications. And as of September, 12.6 million Americans were unemployed.

President Ronald Reagan's first four years in the White House weren't particularly lucrative for Wall Street.

Crushed by Federal Reserve chairman Paul Volcker's war on inflation, the economy stumbled into a brief recession in July of 1981. Unemployment spiked to nearly 11%. But Volcker's rate hikes and Reagan's corporate tax cuts eventually broke the back of inflation, setting the stage for rapid economic growth. Under Reagan, America drastically ramped up defence spending in a successful bid to bring down the Soviet Union.

Despite the strong economy, Wall Street suffered its worst day ever under Reagan. The Dow plunged an astonishing 22.6% on Black Monday - equalling about 5,500 points today.

Nonetheless, the S&P 500 posted five separate years of double-digit growth on the Gipper's watch, including a 26% spike in 1985. The economy and stock market surged in President George H. W. Bush's first year in office. The S&P 500 climbed 27% in 1989.

But then the savings-and-loan crisis and Gulf War struck. Oil prices more than doubled after Iraq invaded Kuwait. Growth slowed, and the American economy slipped into a mild recession in July 1990.

While the recession ended in March 1991, the recovery was choppy. Two years later, unemployment remained around 7%. The sluggish economy led to Bush's defeat in 1992. The roaring 90s were very kind to Wall Street.

Stocks spiked - the S&P 500 increased 210% under President Bill Clinton - as investors celebrated the rise of the internet and brisk economic growth. Clinton presided over two of the S&P 500's top 10 years: 1995 and 1997.

GDP topped 4% in five of Clinton's eight years in the White House. Inflation remained stable. Unemployment dipped below 4%. And the United States enjoyed the longest period of uninterrupted economic growth in modern history.

The era was punctuated by the dotcom boom, which amounted to the creation of an entirely new industry. The Nasdaq spiked sevenfold between 1993 and its peak in early 2000. The mania created vast amounts of wealth - much of which would disappear as the bubble inevitably popped.

Investors who bet that a businessman in the White House would translate into strong returns were badly disappointed during President George W. Bush's presidency. The S&P 500 declined 40% under Bush, the worst among modern administrations.

Bush inherited the dotcom bust, which spawned the 2001 recession. The downturn was deepened by the September 11 terror attacks.

Growth gathered steam in 2004 and 2005, fuelled in part by low interest rates and the housing boom. But that bubble also popped in spectacular fashion, ushering in the Great Recession and the scariest financial crisis in a generation.

The Wall Street meltdown continued during the first few months of President Barack Obama's presidency.

The financial and auto industries teetered on the brink of collapse before government bailouts saved them both. Unemployment would peak at 10% in 2009, doubling in barely a year. The stock market bottomed out in March 2009, but then the economy slowly healed, beginning what would eventually become the longest bull market in American history.

Digging out of the depths of the Great Recession was a long and slow process, though. Annual GDP growth never topped 3% in the Obama era.

President Donald Trump's upset victory initially fuelled a breathtaking rally in the stock market as investors welcomed his pro-business agenda of tax cuts, deregulation and infrastructure spending. Early in Trump's presidency, corporate profits spiked after his signature legislative achievement - a tax overhaul. And the unemployment rate plunged below 4%. A trade war with China temporarily sucked some of the air out of the market's gains in late 2018, but it wasn't until the coronavirus pandemic hit the United States in early 2020 that the bull market officially came to an end.

The S&P 500 reached a high on February 19, 2020 and then plunged 34% over a month, as states enacted stay-at-home orders and businesses shut down to contain the virus.

Cumulatively, the S&P 500 is up 44% from Trump's inauguration to the market close on 30 October 2020.

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