U.S. presidents often get too much credit for how the stock market does during their tenures while Federal Reserve policies actually have a more direct impact.
Nevertheless, Yahoo Finance took a brief look at how the market has performed under each president from Richard Nixon all the way to Donald Trump (through his first two 521 days in office), while also considering some of the major things that impacted the market.
A presidential election oftentimes is a referendum on the state of the economy, which ultimately led to the downfall of George H.W. Bush, who failed to win a second term in office even though the S&P 500 saw a 52.6 percent gain under him, a strong number compared to Ronald Reagan’s returns of 30.6 and 61.5 percent first- and second-term figures, respectively.
The stock market soared under Bush, but the economy fell into a mild recession he was unable to overcome in the election against a charismatic young Bill Clinton who, much like Trump’s “Make America Great Again” campaign, had a marketing slogan that struck a chord with voters.
Though skilled in international affairs, economics was not Bush’s strong suit. As Yahoo Finance editor-in-chief Andy Serwer writes, “[President] Clinton based his campaign [against Bush] on the catchphrase ‘It’s the economy stupid,’ which originally was an internal reminder for campaign workers created by Clinton strategist James Carville.”
Later, Bush would blame Federal Reserve Chairman Alan Greenspan for his loss to Clinton. “I reappointed him, and he disappointed me.”
Fighting the Fed
Prior to the Federal Reserve Reform Act of 1977, which was designed in part to establish Fed independence, other presidents took a more heavy handed approach toward consulting with their Fed counterparts. As President Lyndon Johnson waged twin wars in Vietnam and on poverty, deficits stacked up, and this concerned Fed Chairman William McChesney Martin. The two got together at Johnson’s ranch, and a confrontation ensued.
“Johnson got Martin alone and did not mince words. According to different accounts, the 6-foot-4 Johnson pushed the shorter Martin up against a wall,” writes the New York Times. “‘Martin, my boys are dying in Vietnam, and you won’t print the money I need,’ he said.”
The Fed eventually succumbed to “money printing” pressure (now called “accommodative monetary policy”), President Nixon closed the gold window, stagflation ruled, gas lines ensued. Thus, was the 1970’s. The most exceptional returns belonged to Jimmy Carter, but 25.2% wouldn’t overcome an Iranian revolution and economic malaise.
After Fed chairman Paul Volcker flexed his independent Fed muscle, ratcheting short-term rates to an eye-watering 19% in 1981, the reset button had effectively been hit, setting the stage for his successor, Alan Greenspan — a chairman who would earn the dubious nickname “Easy Al.”
Clinton: Greenspan’s big winner
President Bill Clinton was the biggest winner in the Greenspan era, racking up returns of 70.1% and 100.5% in his two terms. President George W. Bush inherited the dot-com bubble bust, and racked up a loss of 21.0% in his first term. But a recovery was underway, quite literally built on housing. Most of us remember how that ended.
George W. Bush’s second term ended with stocks down only 11.0%, which disguises the 40.8% peak-to-valley loss from the market high in October 2007 until President Obama was elected.
Like his predecessor, Obama inherited a bubble economy recently busted, but one much worse than than before. But trillions of fiscal and monetary stimulus would eventually turn around a financial crisis into stock markets returns of 42.0% and 49.8% over Obama’s two terms. Unfortunately, economic growth didn’t rebound with stocks, leaving economists to wonder if we had entered a new, slower normal.
The Trump factor
Enter President Trump. By November 8, 2016, the Fed had begun to raise rates (once, the prior December), and it looked like the monetary spigots couldn’t be counted on. But stocks were emerging from an earnings recession, and Q3 GDP wasn’t terrible at 1.9%.
After a stomach-churning drop in stock futures on Trump’s election night, the following day would close in the green, and it was off to the races for U.S. stocks. The promise of pro-business policies, deregulation, tax cuts, infrastructure and other fiscal stimulus helped stocks climb 37.5% by January 2018.
But volatility, which had become a distant memory, reared its ugly head again. And a hawkish Fed, burgeoning trade war and non-U.S. global slowdown have weighed on risk markets since.
As of today, Trump’s return stands at 26.2%, 521 trading days into his tenure. It’s anyone’s guess where stocks will stand on November 3, 2020.