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Program Trading & Democratic Presidential Inaugurations

Program Trading & Democratic Presidential Inaugurations

There have always been a lot of assumed facts about how the markets have reacted to new Presidential administrations, with the overall myth being that the markets have always done much better during Republican administrations than during Democratic administrations.  Consider the following facts:  

In election cycles since World War II, the Dow Jones industrial average has posted bigger returns under Democratic presidents.  Since 1953, here is how the stock market has fared under Republican versus Democratic Presidents.  During a four year Republican administrative term the markets have been up 8.00% overall.  However, in the first Inaugural year of Republican presidents the markets have been down 1.20% on average.  During a four year Democratic administrative term the markets have been up 9.10% overall.  However, in the first inaugural year of Democratic presidents the markets have been up 9.70% on average.

Since 1896 there have been sixteen Republican administrations.  But only twelve Democratic administrations.  This is inclusive of the fact that Woodrow Wilson, Franklin Roosevelt, and Bill Clinton served more than one term.   With regard to how the markets did during Democratic Presidential terms, we decided to focus on the very first year, the Inaugural year, of Democratic Presidential administrations.  These years are 1997, 1993, 1977, 1965, 1961, 1949, 1945, 1941, 1937, 1933, 1917, 1913.   In seven of these twelve years (58%) the market ended higher than where it began. This was true in 1997, 1993, 1965, 1961, 1949, 1945 and 1933.

Let's look at where the yearly highs and yearly lows posted in all twelve Democratic Presidential Inaugural years:

Year High  Low
1997 August 7 April 14
1993 December 29 January 23
1977 January 3 October 25
1965 December 31 June 29
1961 November 15 January 3
1949 December 30 June 14
1945 December 10 January 24
1941 January 10 December 24
1937 March 10 November 23
1933 July 18 February 27
1917 January 3 December 19
1913 January 9 June 11

In all twelve years, 66.6% (8 of 12) of the yearly lows posted within the first six months and only 33.3% (4 of 12) within the last six months.   In all twelve years, 58% (7 of 12) of the yearly highs posted within the last six months, with 42% (5 of 12) within the first six months.   So the odds favor the low in the first half of 2009 and the high in the last half.

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