Monday, March 27, 2006

Does the Stock Market Prefer Democrats or Republicans?

Economist Jeremy Siegel reports:

On the afternoon of Election Day, November 2, 2004, exit poll numbers were released from both Florida and Ohio that suggested Kerry was doing much better than expected. If the Democrats took Ohio or Florida, electoral math made it very difficult for Bush to win.

Immediately upon the release of Kerry's supposed success, there was a sell-off in stocks. The Dow Industrials, which were up strongly early in the day, plunged about 100 points when the polls were released. But in the evening, the exit polls proved wrong, and Bush was the clear victor. The following day stocks made up all the lost ground and then some.

But, Siegel points out, this reaction may be historically atypical:

Despite the behavior of the market during the last Presidential election, over longer periods of time, the stock market has done significantly better under Democratic administrations....Since 1948, Republican Administrations have controlled the White House 57.2 percent of the time. But during the period that the GOP was in office, stock returns have averaged only 9.53 percent per year, while under Democratic administrations, stocks returned 15.25 percent per year, more than five percentage points higher.

You can read more here: