February 2009

 

Ask a trust officer:

Market forecasting

 

DEAR TRUST OFFICER: 

 

Does the stock market do better when a Republican or a Democrat is President?  Does it make a difference which party is in control of Congress?

—LOOKING FOR BETTER TIMES AHEAD

 

DEAR LOOKING FOR BETTER:

 

First off, the current economic climate is unlike any faced by a Democratic or Republican President in generations.  So generalizations about political parties and the stock market need to be taken with extra grains of salt.

 

The stock market has fared better under Democratic Presidents. Although raw numbers support it, that fact alone doesn’t tell the whole story. The makeup of Congress is likely to have an impact on market activity because Congress decides (except in cases of a successful Presidential veto) how much—and whom—to tax and how to spend.

 

Looking at the issue with regard to Congressional control favors the Republicans. Over the last quarter century, when Republicans had a majority in both the House and the Senate, the market rose, on average, by about 20% annually; only 6.9% when the Democrats controlled both Houses. When one party held the majority in one House and the other party in the other House, the growth in the stock market was less than when the Republicans controlled both houses, but significantly more than when the Democrats held the majority.

 

 

If you are looking for positive signs ahead,  Stock Market Trader’s Almanac 2009 has tracked Presidential four-year terms since 1833 and compared each year to the annual percentage change in the Dow. Post-election years did see more downs than ups (24 versus 19). But mid-term years saw 26 ups versus 18 downs; and pre-election years boasted 33 ups versus only 11 downs—with a streak of 17 up years in the last 68 (until last year, of course).

 

Using political history as a means to predict where the stock market may be headed can be an interesting exercise, but it is unrelated to economic or market fundamentals. It’s definitely not a substitute for obtaining advice from a knowledgeable and objective professional. We would be glad to offer you our guidance.

 

Do you have a question concerning wealth management or trusts? Send your inquiry to [tormey@pgbank.com].

 

 

© 2009 M.A. Co. All rights reserved.