I’m not allocating much space to this column to discuss the past six months. I think we might all agree that it will be regarded as one of the most tumultuous periods in history, if not in our lifetimes. Like you, I hope and pray that the next 6 months will be dramatically better than the last, in both financial markets and society in general.
What I did want to spend a little time on was answering a question I have been getting with greater frequency than normal when leading up to a presidential election. That question is:
What impact will a Biden or a Trump presidency have on the markets and economy?
It is a fascinating question and before I answer it, let me offer a brief history as to the impact presidents have had on financial markets and the economy in the past. I have listed the top five presidents based solely on the performance of the stock market during their respective term in office. As you will see, stellar market performance while they were president doesn’t tell the whole story.
1. Calvin Coolidge, 30th President (Term: August 2, 1923 to March 4, 1929)
Annualized Compound Market Performance: 26.1% per year
- In Coolidge’s five-and-a-half years in office, the Dow soared an incredible 266%. His fiscal policy encouraged a speculation-driven over-heated economy and margin trading, policies which contributed to the Great Depression.
- The Revenue Acts of 1924 and 1926, which sharply reduced income taxes, especially gift, excise, and inheritance taxes.
2. Bill Clinton, 42nd President (Term: January 20, 1993 to January 20, 2001)
Annualized Compound Market Performance: 15.2% per year
- Financial Services Modernization Act that repealed Glass-Steagall. The repeal of Glass-Steagall consolidated investment and retail banks and promoted high-risk speculation, which contributed to the 2008-2009 Great Recession.
3. Barack Obama, 44th President (Term: January 20, 2009 to January 20, 2017)
Annualized Compound Market Performance: 13.8% per year
- The Dodd–Frank Wall Street Reform and Consumer Protection Act overhauled financial regulation in the aftermath of the financial meltdown for almost every part of the nation’s financial services industry.
4. George H.W. Bush, 41st President (Term: January 20, 1989 to January 20, 1993)
Annualized Compound Market Performance: 11.0% per year
- The Financial Institutions Reform, Recovery and Enforcement Act of 1989, giving the Federal Deposit Insurance Corporation (FDIC) regulatory oversight over troubled savings and loans.
5. Dwight Eisenhower, 34th President (Term: January 20, 1953 to January 20, 1961)
Annualized Compound Market Performance: 10.9% per year
- Embarked on the Interstate Highway System, a 41,000-mile road system, one of the most ambitious infrastructure projects in American history;
- Expanded Social Security.
These five presidents presided over incredible market performance. Despite impressive double-digit market returns during the terms of Calvin Coolidge and Bill Clinton, for example, the fiscal policies they championed proved to be highly detrimental to the economy and financial markets after they left office. Clearly, stock market performance during a president’s tenure tells only part of the story.
So, what president provided the most positive impact on the financial markets and the economy as a whole during their time in office? This guy:
Franklin Delano Roosevelt, 32nd President (Term: March 4, 1933 to April 12, 1945)
Annualized Compound Market Performance: 6.2% per year
- The Securities and Exchange Act, which created the Securities and Exchange Commission to regulate financial markets;
- The Federal Deposit Insurance Corporation, guaranteeing the savings of average citizens;
- The Glass-Steagall Act (part of the 1933 Banking Act), which prevented commercial banks from engaging in investment banking;
- The Department of Commerce and Labor (later separated into two cabinet departments);
- The Pure Food and Drug Act (precursor to the Food and Drug Administration).
What president provided the most detrimental impact on the financial markets and the economy as a whole during their time in office? This guy:
Herbert Hoover, 31st President (Term: March 4, 1929 to March 4, 1933)
Annualized Compound Market Performance: -30.8% per year
Hoover took office just months before the 1929 crash that ushered in the Great Depression and a decade of the worst bear markets in U.S. history. That was bad luck for him. But he made conditions worse by signing into law the Smoot-Hawley Tariff Act. Virtually every economist of his day warned him it would exacerbate things. It did, turning what might have been a modest recession into the worst depression in U.S. history.
Ok, so what about Biden and Trump? What sort of impact will they have on the financial markets/economy? First of all, you have learned from our little history lesson that, contrary to popular belief, it hasn’t been a Democrat vs. Republican thing. Good and bad markets have been sprinkled over both political party’s presidential representative while in office.
What I believe is this: When we invest in the financial markets we are investing in companies. Companies are run by people. People, particularly capable ones, adapt to governmental policies. They endure. They make do. There have been temporary setbacks and no doubt, there will be more in our future. But those who bet against our economy and financial markets because a particular individual does or does not reside in the oval office have suffered more than benefited financially.
Markets cannot be timed. The future cannot be accurately predicted. Stay the course, keep your eye on the ball, and continue to be a long-term, successful investor.