Halifax press release
U.S. Presidential Elections and impact on Stockmarkets
Saturday 4th September 2004
As the United States gears up for the presidential elections on 2nd November, new research from Halifax Financial Services shows how previous campaigns have affected the performance of the Dow Jones and FTSE 100 over the last 50 years.
With the incumbent, George W Bush, facing Democrat challenger John Kerry at the ballot box, it remains to be seen how the world's major stockmarkets will fare this time around.
Since the end of the Second World War, there have been 14 presidential elections – eight have been won by Republicans and six by Democrats. The average rise on the Dow Jones during a Republican presidency is 37%, compared with 46% during a Democrat presidency.
The period from June to November is significant because it covers the time between parties nominating their candidates and the elections themselves. During these months the electorate will learn about the candidates' policies and begin to form an opinion on how they will perform if elected president.
Performance of Dow Jones Industrial Average during Presidential elections
| June-Nov | Oct-Dec | Average | |
|---|---|---|---|
| Average Dow Jones rise during election won by Republican (%) | 5 | 3 | 4 |
| Average Dow Jones rise during election won by Democrat (%) | 0 | 2 | 1 |
During this period it will become clear if one candidate is emerging as the clear winner, as happened with Bill Clinton in 1996, Ronald Regan in 1984, Richard Nixon in 1972 and Lyndon B. Johnson in 1964.
The second time period, from October to December, covers the final month of campaigning, Election Day in November and the formal election by the Electoral College in December. Examining this time can show how the stockmarket performed during tight-run contests, such as George W. Bush versus Al Gore in 2000, John F. Kennedy versus Richard Nixon in 1960, and Harry Truman versus Thomas Dewey in 1948.
Performance of Dow Jones Industrial Average during Presidential elections
| Year | Winner | Party | % Index change during election | % Index change while in office | ||
|---|---|---|---|---|---|---|
| June-Nov | Oct-Dec | Average | ||||
| 1948 | Truman | Dem | -10 | -6 | -8 | 65 |
| 1952 | Eisenhower | Rep | 3 | 8 | 6 | 71 |
| 1956 | Eisenhower | Rep | -4 | 4 | 0 | 23 |
| 1960 | Kennedy | Dem | -7 | 6 | 0 | 42 |
| 1964 | LBJ | Dem | 5 | 0 | 3 | 8 |
| 1968 | Nixon | Rep | 10 | -1 | 4 | 8 |
| 1972 | Nixon | Rep | 10 | 7 | 8 | -2 |
| 1976 | Carter | Dem | -6 | 4 | -1 | -4 |
| 1980 | Reagan | Rep | 14 | 4 | 9 | 26 |
| 1984 | Reagan | Rep | 5 | 0 | 3 | 79 |
| 1988 | Bush (Snr) | Rep | -1 | 1 | 0 | 52 |
| 1992 | Clinton | Dem | 0 | 2 | 1 | 95 |
| 1996 | Clinton | Dem | 15 | 7 | 11 | 67 |
| 2000 | Bush (W) | Rep | 0 | -2 | -1 | N/A |
| Average | 2 | 3 | 3 | 41 | ||
Performance of FTSE 100 during Presidential elections
| Year | Winner | Party | % Index change during election | % Index change while in office | ||
|---|---|---|---|---|---|---|
| June-Nov | Oct-Dec | Average | ||||
| 1984 | Reagan | Rep | 13 | 7 | 10 | 46 |
| 1988 | Bush (Snr) | Rep | -4 | -3 | -3 | 58 |
| 1992 | Clinton | Dem | 10 | 7 | 8 | 45 |
| 1996 | Clinton | Dem | 9 | 4 | 6 | 51 |
| 2000 | Bush (W) | Rep | -3 | -3 | -3 | N/A |
| Average | 5 | 2 | 4 | 50 | ||
Impact of US Presidential elections on UK stockmarkets
In 1984 the FTSE 100 was established, and the index saw the largest rise during a presidential election that same year, when Ronald Reagan won a second term.
There have been five presidential elections since 1984, and the largest fall during a campaign occurred in 1988, when George Bush Snr won.
Generally, the FTSE 100 appears to closely follow the performance of the Dow Jones during presidential elections. Both indices rose in the run-up to Ronald Reagan's election and fell during George Bush Snr's campaign, although the strongest rise on the FTSE 100 was seen during Bush Snr's term in office.
However, this followed Black Monday in October 1987, which saw global stockmarkets, including the Dow Jones and FTSE, crash. This was a result of a lack of confidence in New York following US interest rate increases, coupled with a poor economic outlook and severe storms in the south east of England.
Performance of FTSE 100 during Presidential elections
| June-Nov | Oct-Dec | Average | |
|---|---|---|---|
| Average FTSE 100 rise during election won by Republican (%) | 2 | 0 | 1 |
| Average FTSE 100 rise during election won by Democrat (%) | 10 | 5 | 7 |
Martin Ellis, Chief Economist for Halifax Financial Services, said:
"The past can never be predictive of the future, but it is interesting to look back at how global political developments impact upon our everyday lives through any shareholdings that we may have, such as pensions and long-term equity plans.
While they may seem far away, events on the world's political stage do impact us all."
Key World Events During Presidential Campaigns
1940s
The Dow Jones Industrial Average remained subdued during the Second World War, and the bombing of Pearl Harbour in 1941 saw the index fall to 112.52 points. By the end of 1945, the year the war ended, the Dow Jones stood at 192.91. The sharpest fall on the index during the run-up to an election came in 1948, when Harry Truman was re-elected, but the index rose during his second term, which ended in 1952.
1950s
The outbreak of the Korean War in 1950 led to further declines, with the Dow Jones falling to 197.46 by 13th July 1950, but the index ended the year up 17.6%, and gained another 14.4% in 1951. In March 1956 the Dow Jones broke through the 500 barrier, and between 1950 and 1959 the index rose 239.5%.
1960s
News of the Soviet Union's move to install offensive nuclear missiles in Cuba pushed the Dow Jones down to 558.06 in October 1962 – a fall of 24% from the beginning of the year. Soviet leader Nikita Khrushchev agreed to withdraw the missiles soon after the crisis began and a year later, less than one month before John F Kennedy's assassination, the index stood at 755.23.
1970s
The Dow Jones fell while Richard Nixon and Jimmy Carter were in office. The Vietnam War ended soon after Nixon began his second term, but in 1974, following the Watergate scandal, he became the first US President to resign. Nixon was succeeded by Vice-President Gerald Ford, who narrowly lost to Jimmy Carter in 1976.
During the 1970s, the world's major economies experienced serious recessions, high unemployment, and much higher rates of inflation than it had had during the previous two decades. In 1973, the Organisation of Petroleum Exporting Countries embargoed crude oil and then raised prices, leading to acute shortages and rising prices.
1980s
By 1980, inflation was in double figures, but had fallen to 3.8% by 1982 as the Federal Reserve raised interest rates. The Dow Jones started 1987 at 1895.95 points and peaked at 2722.42 in August, but went on to drop almost 1,000 points in the autumn.
Severe storms in the south east of England and a lack of confidence in New York, coupled with a poor economic outlook, resulted in Black Monday on 19th October 1987. The Dow Jones, FTSE and Nikkei crashed, wiping billions of pounds off the value of shares.
1990s
The US economy was recovering from the recession of the late 1980s, but in 1992 the federal budget showed a record deficit of $290 billion. This was steadily eroded over the following years before the budget moved into surplus in 1998. Unemployment, which had been rising between 1989 and 1992, reached a record low rate towards the end of Bill Clinton's second term in 2000.
The largest rise on the Dow Jones came during Bill Clinton's first term, between 1992 and 1996. His election coincided with a period of relative global calm – the first Gulf War had recently ended, and the Cold War had passed with the dissolution of the Soviet Union.
2000s
A global economic slowdown pushed the Dow Jones below 10,000 points in March 2001, and terrorist attacks of September 2001 led to further losses, but the index rose back above 10,000 before the end of the year. However, in July 2002, corporate scandals such as Enron and WorldCom saw the Dow Jones fall below 8,000 for the first time since October 1998.
Editors' Notes
- The Dow Jones Industrial Average was established in 1896, while the FTSE 100 was established in 1984.
- Key US dates:
- 12th March 1956 – Dow Jones breaks through the 500 barrier amid low inflation and low interest rates.
- 4th October 1957 – The Soviet Union launches Sputnik, the first artificial Earth-orbiting satellite. Within three weeks the Dow Jones falls almost 10% to 419.79.
- 22nd November 1963 – John F Kennedy assassinated. The Dow Jones falls from 732.65 to 711.49, but recovers quickly.
- 14th November 1972 – Dow Jones breaks through the 1000 mark, one week after Richard Nixon's re-election. Economic growth is strong, inflation moderate and interest rates are low. The US economy entered a recession towards the end of 1973, and the Dow Jones fell to 577.60 by December 1974.
- 8th August 1974 – Richard Nixon becomes the first US president to resign following the Watergate scandal. He is replaced by Gerald Ford, who became Vice-President in October 1973 following the resignation of Spiro Agnew.
- 30th April 1975 – America's 15-year involvement in Vietnam ended when North Vietnamese troops entered Saigon, and the Dow Jones rose sharply over the following months.
- 22nd September 1980 – Iraqi president Saddam Hussein ordered the invasion of Iran. The Dow Jones fell from 980 to 922 over the following days, but had risen to 2119 by the time a truce was agreed on 8 August 1988.
- 8th January 1987 – Dow Jones breaks the 2000 barrier and peaks at 2722.42 on 25th August.
- 19th October 1987 – Black Monday. The Dow Jones falls 508 points, or almost 22%, and the FTSE falls over 500 points within the space of a few days, wiping billions of pounds off the value of shares.
- 10th November 1989 – The Berlin Wall falls, and less than a month later on 3rd December George Bush Snr and Mikhail Gorbachev hailed the start of a new era in US-Soviet relations by announcing plans to reduce strategic nuclear weapons and conventional forces in Europe.
- 2nd August 1990 – Iraq invades Kuwait. Fear of a prolonged war sees the Dow Jones, which had been nudging the 3000 level, fall to 2365.10 by October 11.
- 17th April 1991 – The Dow Jones finally breaks the 3000 barrier, less than two months after Allied forces liberated Kuwait City.
- 26th February 1993 – Five people are killed by a bomb blast at the World Trade Center in New York.
- 29th April 1995 – More than 100 people are killed in the bombing of a federal building in Oklahoma City.
- 24th March 1999 – NATO begins air strikes against Serbian military targets in the former Yugoslavia in reaction to the displacement of the Albanian population of Kosovo. The war officially ends on 10th June.
- 29th March 1999 – The Dow Jones breaches the 10,000 barrier, following a surge of 170 points.
- 14th March 2001 – The slowing US economy sees the Dow Jones fall below 10,000, despite the Federal Reserve cutting interest rates 11 times during the course of the year.
- 11th September 2001 – Thousands of people are killed in the terrorist attacks on the World Trade Center and Pentagon. Trading in New York is halted for four days.
- 21st September 2001 – Fears of further terrorist attacks and a global economic slowdown push the Dow Jones down to 8235.80, but the index rises back above 10,000 before the end of the year.
- 7th October 2001 – US and British forces launch air strikes against Afghanistan
- 23rd July 2002 – Corporate scandals such as the WorldCom and Enron bankruptcies see the Dow Jones fall below 8000 points for the first time since 1998.
- 19th March 2003 – US and British forces invade Iraq. Less than a month later, the coalition partners declare the war effectively over, and Saddam Hussein is captured on 14th December.
- Sources:
Dow Jones data: Dow Jones Indexes and Globalfindata.com
FTSE 100 data: FTSE International Limited.
