Presidents get blamed for a lot of things that have precious little to do with their efforts. On the other hand, they don’t shy away from taking credit for accomplishments that were set in motion by others before them. It’s similar to business leaders and sports coaches; basically, it happens in any setting where the person at the helm changes from time to time. As we approach an election this week it might be interesting to review the performance of various asset classes during the tenure of our presidents since 1970.
The risk in doing this is faulty attribution: that is, the buoyant performance of any particular asset class might be attributed to the individual who was in the Oval Office at that time; or the poor performance of an asset class will be blamed on the current president. Both would be errors as there are simply too many other forces at work on the many levers and pulleys of asset performance.
But if you flip the mind-set and instead of attributing a market trend to the president, you can instead gain some perspective about the environment in which the president has operated and the type of challenges they faced.
For this analysis, we're looking at the market for broad asset classes since 1970, specifically in terms of real performance (adjusted for inflation) to offset the vast differences in the general price level over the years.
LARGE-CAP DOMESTIC STOCKS
We begin our discussion with a 46+ year review of large cap US stock performance (S&P 500 Index) inasmuch as it is likely the most visible measure of the U.S. stock market. Of course there are many important asset classes, but large cap US stock is assuredly the most visible to most investors. And, as a result, the performance of the S&P 500 Index is one of the measures people will use to evaluate the performance of the president.
Of all the presidents since 1970, George W. Bush had the roughest experience with large-cap U.S. stocks. As shown in our chart, the average annualized 4-year real return for the S&P 500 was negative during both of his terms. And to make it even worse, his second term ended in 2008—a year in which nearly every asset class was gutted. Large cap US stock lost 37%, small cap US stock lost nearly 34%, non-US developed stock lost 43.4%, real estate declined by 39% and commodities lost 46.5%. No other year since 1970 was anywhere close to the meltdown experienced in 2008. Other presidents who faced negative returns in U.S. large caps were Richard Nixon and Gerald Ford—though just slightly negative during their terms.
Big winners with large caps were Ronald Reagan (in his 2nd term), George H.W. Bush, Bill Clinton, and Barack Obama—although President Obama has a couple of months remaining before his tenure is over.
SMALL-CAP DOMESTIC STOCKS
The U.S. stock market is too complicated to simply be measured by one index, such as the S&P 500. This is evident as we look at the performance of small-cap U.S. stocks (as measured by the Russell 2000 Index) during the Ford and Carter administrations.
Despite large-cap stock struggling during their time in office, small caps flourished. Small stock performance was solid during the Reagan, Bush, and Clinton years. During the first term of George W. Bush, small stock did well, but during his second term it stumbled. During the Obama administration small stock has rebounded—so far as of October 31, 2016. During Nixon’s tenure small US stock had an exceptionally rough time.
NON-U.S. STOCK
The performance of this particular asset class (as measured by MSCI EAFE Index) may have very little to do with who is in the White House—or maybe it does. The three time periods with negative real returns for non-US stock were during the two Bush administrations – both of which were marked by armed conflict in the Middle East—and during the three period from 1974-1976 under President Ford. While the Middle East is not a component of the MSCI EAFE Index (which measures stock market performance in Europe, Australasia, and the Far East) conflict in that region certainly appears to impact the performance of global markets.
U.S. BONDS, CASH
U.S. bonds (Barclay’s Aggregate Bond Index) and cash (90-day Treasury Bills) had a heyday during the Reagan administration. During Reagan’s first term the 4-year annualized real return of bonds was 9.5%, which is a heady, inflation-adjusted rate of return for fixed-income. During his 2nd term, U.S. bonds averaged 8.1%. Reagan’s eight years in office were also the glory years for cash with a four-year average annualized real return of 5.8% during his first term and 3.0% during his second.
By comparison, President Obama has been in office during a period in which cash has delivered negative real returns. Ford and Carter suffered through the same situation with cash, as did George W. Bush during his 1st term.
INFLATION
During the Carter administration, the CPI averaged an annual increase of 10.3%. By comparison, during the first term of the Obama administration the average annualized inflation rate was 2.2% and 1.4% thus far during the second term (as of 10/31/2016). These two different time frames (1977-1980 and 2009-2016) presented dramatically different inflation climates for the respective presidents.
Indeed, during the Nixon, Ford, and Carter administrations inflation was a significant problem. U.S. bonds had negative real returns during the Carter years—the only president to experience that since 1970. Reagan also dealt with relatively high inflation during his first term.
Perhaps the value of this type of historical review might simply be to serve as a reminder of the importance of evaluating asset class performance in real terms rather than gross performance.
Editor’s note:
