THE PRESIDENCY AND STOCK MARKET
Stock market rallies have historically benefitted the incumbent president. Since 1980, the only incumbents to lose re-election when the Dow Jones Industrial Average was up following a recession were Jimmy Carter and George H.W. Bush.
Date DJIA Monthly Averages Key events
January 1980 860.74 Early 1980s recession: January to July 1980
November 1980 971.08 Presidential Election: Incumbent Jimmy Carter loses to Ronald Reagan
July 1981 947.94 The Iran/Energy Crisis Recession: July 1981 - November 1982
November 1984 1,211.30 Presidential Election: Incumbent Ronald Reagan defeats Walter Mondale
November 1988 2,099.04 Presidential Election: Vice President George H. W. Bush defeats Michael Dukakis
July 1990 2,934.23 The Gulf War Recession: July - March 1991
November 1992 3,238.49 Presidential Election: Incumbent Bush loses to Bill Clinton
November 1996 6,326.98 Presidential Election: Incumbent Clinton defeats Bob Dole
November 2000 10,653.94 Presidential Election: George W. Bush defeats Al Gore
March 2001 10,081.32 Recession March - November 2001
November 200410,411.76 Presidential Election: Incumbent Bush defeats John Kerry
December 2007 13,406.99 Great Recession: December - June 2009
November 2008 8,614.55 Presidential Election: Barack Obama defeats John McCain
Oct. 5, 2012 13,610.15 U.S. jobless rate for September drops to 7.8 percent for the first time in 40 months
SOURCES: Dow Jones Industrial Average, Federal Election Commission
THE PRESIDENCY AND STOCK MARKET Stock market rallies have historically benefitted the incumbent president. Since 1980, the only incumbents to lose re-election when the Dow Jones Industrial Average was up following a recession were Jimmy Carter and George H.W. Bush. Date DJIA Monthly Averages Key events January 1980 860.74 Early 1980s recession: January to July 1980 November 1980 971.08 Presidential Election: Incumbent Jimmy Carter loses to Ronald Reagan July 1981 947.94 The Iran/Energy Crisis Recession: July 1981 - November 1982 November 1984 1,211.30 Presidential Election: Incumbent Ronald Reagan defeats Walter Mondale November 1988 2,099.04 Presidential Election: Vice President George H. W. Bush defeats Michael Dukakis July 1990 2,934.23 The Gulf War Recession: July - March 1991 November 1992 3,238.49 Presidential Election: Incumbent Bush loses to Bill Clinton November 1996 6,326.98 Presidential Election: Incumbent Clinton defeats Bob Dole November 2000 10,653.94 Presidential Election: George W. Bush defeats Al Gore March 2001 10,081.32 Recession March - November 2001 November 2004 10,411.76 Presidential Election: Incumbent Bush defeats John Kerry December 2007 13,406.99 Great Recession: December - June 2009 November 2008 8,614.55 Presidential Election: Barack Obama defeats John McCain Oct. 5, 2012 13,610.15 U.S. jobless rate for September drops to 7.8 percent for the first time in 40 months
SOURCES: Dow Jones Industrial Average, Federal Election Commission
Stock prices have rebounded to pre-recession levels while overall economic growth remains stuck in neutral, a fact that President Barack Obama’s Republican Challenger Mitt Romney was quick to point out in this year’s first presidential debate last week.
The problem for Romney, however, is that many Americans equate the stock market with the economy and tend to vote based on how stocks have performed under the incumbent president, experts say.
Under the Obama administration, the benchmark Dow Jones Industrial Average stock index has climbed more than 50 percent and recovered nearly all of the losses it sustained following the financial crisis in 2008.
On Friday, the Dow closed up 34.79 points at 13,610.15 — 203.16 points higher than the average monthly close in December 2007 when the Great Recession began.
The rally has boosted individual stock portfolios and 401(k) and IRA balances for the just over 50 percent of Americans directly or indirectly invested in the stock markets, and that has worked to undermine the narrative in Romney campaign ads that people are no better off now than when Obama took office, said Bryan Marshall, a political science professor at Miami University.
“If you’re trying to get people to think about the past four years, and ask them if they are better off now than they were four years ago; well, if you’re in the market, you have to feel better about your retirement and the money you have, and that’s part of the reason for Obama’s cushion in the polls right now,” Marshall said.
Before Wednesday’s debate, Obama was tied with Romney or held a decided advantage in most polls of likely voters. But political observers expect Romney to see a bounce in the polls following the debate, in which Romney was declared the clear winner by most pundits.
Still, stock prices have helped boost consumer confidence — even for people who are not invested in the markets — and consumer sentiment will likely play a pivotal role going into the Nov. 6 election, Marshall said.
“Historically, we know from past elections that people’s perceptions of the stock market and the economy are very important, and a positive view tends to help the incumbent,” he said. “If you look at the polls that ask people the question: ‘Do you think the economy is going to be doing better a year from now?’ Overwhelmingly, something like two-thirds of voters, say, ‘Yes.’”
Overseas could impact market
Curvin Miller, a financial planner at Russell & Co. in Fairborn, fears the exuberance over the stock markets has blinded many investors and voters to the stark reality that country’s underlying economic fundamentals are still far from healthy.
High unemployment, declining wages and record poverty levels do not bode well for an extended stock rally, Miller said. In addition, the continuing European debt crisis and fears of a global economic slowdown could result in a quick downturn in the market that could catch some investors off-guard and just as quickly turn them against the president.
“The one thing that is guaranteed in life is the the markets will go up and the markets will go down,’’ he said. “A lot of people feel like they’ve won the game, but they always feel like they’ve won the game before a crisis hits.”
The major stock indexes were recovering nicely in August 2011 before the initial reports of Spain and Italy’s sovereign debt problems drove the Dow down more than 500 points in one day — the largest one-day loss since the financial crisis of 2008. The markets remained volatile for the rest of the year, and President Obama’s approval ratings dropped to their lowest levels.
While presidents often get the credit and the blame for stock fluctuations, Miller said, that credit is generally misplaced.
Today’s stock prices, for example, have little to do with the president’s policies and are largely the result of the Federal Reserve’s efforts to keep interest rates low, which means investors have seen minuscule returns on fixed-rate investments.
“People who may not have otherwise put their money in stocks are now considering it because they’re falling behind every place else,” Miller said. “At the end of the day, it doesn’t really matter who’s president because the markets are driven by other things.”
Miller said Obama is benefiting from the same fortuitous timing of stock market rallies that helped his Democratic predecessor, Bill Clinton, and a majority of incumbents who won re-election when the stock market was up following a recession. By the same token, stock market crashes have meant doom for incumbents.
President George H.W. Bush had one of the highest approval ratings of any sitting president a year before his bid for re-election in 1992, but he lost to Clinton when the economy was in recession.
“Was it really his fault? No,” said Miller. “But it benefited the new guy.”
When Clinton came up for re-election four years later, he road the wave of the Internet boom of the mid-1990s to victory. The so-called “dot-com” bubble sent stock prices into the stratosphere and helped Clinton easily defeat U.S. Sen. Bob Dole of Kansas.
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