Obama is rare Democrat to govern with bull market in second term


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Re-elected Republican presidents have generally presided over the best stock market returns, but the first year of President Barack Obama’s second term could suspend that trend.

The jump in the Standard & Poor’s 500 Index — 24 percent — is the third-largest annual rally after a president was re-elected since the 1930s, according to Bloomberg. Only Bill Clinton’s and Ronald Reagan’s re-elections overlapped with bigger rallies. The S&P 500 index has grown 108 percent since Mr. Obama took office.

And 2013, Bloomberg predicts, is on course to see the best stock market returns in a decade. On average, the stock market has gained 5 percent during the first year of GOP presidents’ second terms, while it has lost 1.2 percent during second-term Democrats’ fifth years in office.

There are many factors at play contributing to higher stock returns, and the president doesn’t directly influence the market. Since corporate profits were at a five-year low when Mr. Obama took office in 2008, they’ve had a lot of ground to make up.

The Federal Reserve’s quantitative easing policy — buying up bonds every month — and keeping lending rates low has contributed to higher market returns, but the threat of tapering this policy has spooked markets before, and the Fed actually beginning to taper — perhaps in winter or spring 2014 — could depress returns.

And if previous “bull markets” are any indication, this high can’t go on much longer. Five years or less has been the run time for nine of the past 12 bull markets, according to Bloomberg and Birinyi Associates Inc. But that’s just what’s happened recently. “This isn’t physics, there’s no Newton’s Laws that state how long a bull market has to last,” Lawrence Creatura of Federated Investors told Bloomberg.

Even with the Fed drawing down their stimulus program, interest rates are expected to remain low and profits are still expected to climb (see this Wall Street Journal “Heard on the Street” story, “Worry Over Inequality Occupies Wall Street,” about how our growing inequality boosts profit margins). But growth forecasts for both GDP and the S&P predict some slippage in the coming months.

H/T Simone Pathe