Berko: Stocks soar with Democrats in White House

Dear Mr. Berko: Please settle an argument that I have with a stockbroker who is a staunch Democrat. He insists that stocks do much better under a Democratic president than a Republican president. How could that be true? And he insists I vote my pocketbook, which my friends tell me is selfish.

— PP, Jonesboro, Ark.

Dear PP: You should vote your pocketbook. You have a responsibility to yourself, not those friends.

Yes, it’s true; the Dow Jones industrial average performs enormously better under a Democratic presidency than a Republican presidency. Please note that these are very unusual times. Little guys like us have been bludgeoned ad nauseam by greedy banks, crooked brokers, failing pension plans, a deceitful Congress, and exploding costs of health care and home insurance.

According to highly estimable Yale Hirsch, creator of the annually published Stock Trader’s Almanac, the Democrats win hands down. During the past 112 years, the Dow has performed better under a Democratic president than under a Republican president. Between 1901 and 2012, there were 60 years in which the country had a Republican in the Oval Office, and the Dow appreciated 382 percent during those years — a 6.4 percent average annual appreciation. However, during the 52 years under Democratic presidencies (including World War I and World War II), the Dow gained 668.3 percent. That translates to an average annual gain of 13 percent and is more than twice the gain the Republican eras saw. According to Hirsch, if you had invested $10,000 in the 30 Dow Jones industrials during the 60 years of Republican dominance, it would have compounded to a sickly $77,000. However, $10,000 invested in the 30 Dow Jones industrials during the 52 years of Democratic dominance would have compounded to $359,000. This $282,000 difference is too significant to be ignored. Be mindful that these numbers don’t include the first two years of Barack Obama’s second term (2013 and 2014), in which the Dow gained 26.5 percent and 7.52 percent, respectively. Nor do they include the last two years of his presidency, which history will record.

However, if you compare the Dow’s performance with loss of purchasing power, the Democrats’ gain of $359,000 purchased $43,000 in goods and services in 2012, an 88 percent loss of purchasing power, whereas the Republicans’ $77,000 bought $22,000 worth of food, gas, utilities, etc., so investors lost 71 percent of their purchasing power.

But Hirsch writes that there were 14 recessions and 18 bear markets under the Republicans, whereas the Democrats posted seven recessions and 16 bear markets. According to a recently published paper by economists Alan Blinder and Mark Watson, “the U.S. economy not only grows faster, according to real GDP and other measures, during Democratic versus Republican presidencies, it also produces more jobs, lowers the unemployment rate, generates higher corporate profits and investment, and turns in higher stock market returns. Indeed, it outperforms under almost all standard macroeconomic metrics.”

The differences are statistically significant, and economists suggest two factors: enormous oil shocks and an economic concept called total factor productivity. The presidencies of Republicans Richard Nixon, Gerald Ford and George H.W. Bush were unlucky because their terms of office coincided with huge spikes in the price of oil. And the price of oil is among the most important dynamics in our economy. In various degrees, its price affects nearly every facet of industrial, commercial and social activity. Total factor productivity is a metric that economists use to measure the total effect that the growth of technology has had on education, construction, transportation, communication, merchandising, medicine, entertainment, and the entire business and manufacturing process. Inarguably, the Democratic presidencies were fortunate enough to preside over the economy when it produced impressive gains in technology. Consider Bill Clinton’s Democratic administration, during which all of the above activities were made considerably more productive by the growth of the Internet and advances in other technologies.

I like that broker.