To print article, click Print on your browser's File menu. Go back Posted 11/2/2000 Kenner & Niederhoffer What's next for Wall Street	sponsored by: Extra! Wall Street prefers Democrats -- and gridlock Contrary to popular opinion, the market has often done better when a Democrat wins the presidency than with a Republican. But include Congress, and the markets seem to favor a divided Washington. By Victor Niederhoffer and Laurel Kenner The first mistake in public business is the going into it. -- Benjamin Franklin, Poor Richard's Almanac, 1758 The perception that the market favors Republicans is as common as a fish in water. Indeed, during the current presidential sweepstakes, a negative feedback pattern seemed to be circling through the system. First, the market would decline on news that Gore was ahead in the polls. The decline would reduce the likelihood of a Gore victory, which when reflected in the polls led to a rebound in the market. But this rise caused the Gore poll standings to improve, thereby setting the cycle in motion again. Money Plus. Easy online tools and free Bill Pay, too. For insight into this and other relations between presidential politics and the stock market, we interviewed Yale Hirsch, the venerable publisher of the Stock Trader's Almanac for the past 34 years. While somewhat hoary himself, Yale maintains a young and dynamic approach to life. Lately, he's been investing in alternative energy projects, including a car powered by fuel cells and a possible windmill farm in the Caribbean. He's also constantly refining the latest statistics on market cycles. The new edition of the Almanac, for example, notes that the market has fared better in the year after an election when Democrats ousted Republican White House occupants than when the reverse occurred. Yale also found that, despite the market's surge under Reagan and Bush, Democrats have been better for the market this century, after all the results are added up. During the 47 years that Democrats occupied the White House, $10,000 compounded grew to $270,930 -- based on an annual average change in the Dow of 13.4%. That $10,000 grew to only $94,675 in 52 years under a Republican -- an annual change of 8.1 %. Kenner & Niederhoffer Victor Niederhoffer has traded stocks, currencies and futures worldwide for the past 40 years; he is the author of "The Education of a Speculator." Laurel Kenner is a trader and former Bloomberg markets editor. In this series of columns for MoneyCentral, they'll assess the past week's Wall Street performance and next week's prospects. Let us know what you think in the Start Investing Community. Perhaps more significant is the market's tendency to perform significantly worse in the two years after any presidential election than in the two years before. Apparently, administrations attempt to do their hard work during the first two years so that the last two years will roll along smoothly, putting them in a better position to win the next election. There is some support for the market's preference for Republicans, though. According to this year's Almanac: Since 1900, the Dow has risen the day after the election on 10 of 13 occasions when a Republican won the White House, with an average change of +0.9%. For the 12 Democratic victories, the Dow rose only four times, with an average change of -0.5%. Down with incumbents The market is also good at predicting election results. Throughout this century, down markets have signaled defeat for incumbent parties. When the Dow had a losing month as of two weeks before Election Day, the incumbent party lost the presidency on five of six occasions, according to Gibbons Burke (see the link to his site, Markethistory.com, at left). This year, the average was down 2.2%.
Related Web site Markethistory.com	The Stock Market Almanac's Post-Convention-to-Election-Day indicator also looks like bad news for Gore. Of the 16 presidential elections since 1900 where incumbents were victorious, 14 were foretold by rising stock prices from the final day of the last convention. Dissatisfaction with the incumbent party has been reflected by a decline in six of nine election years. (A caveat: Yale Hirsch says the indicator's reliability may have been hobbled this year by rising oil prices and heavy Mideast fighting, factors that often lead to unusual results.) This year, the last day of the last convention fell on Aug. 17. Here are the changes since then: Dow Jones Industrial Average ($INDU): -0.6 % S&P 500 ($INX): -4.4 % Nasdaq Composite Index ($COMPX): -14.6 % A vote for gridlock Our own take on the presidential-stock market relation is that the key positive for markets occurs when the power of the presidency is curbed by a legislature from the other party.
Recent Articles • The long and short of year-end momentum buying, 10/26/00 • When best and worst diverge, follow the worst, 10/19/00 • Big stocks under $5: real bargains?, 10/12/00 more...	As our readers know, we are never content to report a relation without putting pencil to paper and doing some counting. So we looked at each presidential administration going back to the 1896 election, and considered what happened when the president served with both houses in opposition, one house in opposition and both houses from his own party. Then we looked at the market's performance during the two years after each presidential and mid-term election. The results are summarized below: President/Congress Dow Performance Two opposing houses 8.4% One opposing house 7.7% No opposing houses 6.0% For example, since 1994, both houses have been in opposition to the White House. During that period, the Dow industrials went up 27.5% from 1994 to 1996, 18.8% from 1996 to 1998 and 12.3% from 1998 to the present. And thus we conclude, to paraphrase Thomas Jefferson: That presidency is best for the stock market which is able to legislate least. MSN Money's editorial goal is to provide a forum for personal finance and investment ideas. Our articles, columns, message board posts and other features should not be construed as investment advice, nor does their appearance imply an endorsement by Microsoft of any specific security or trading strategy. An investor's best course of action must be based on individual circumstances.