To follow up on my previous post, “Think You Can Make Money Investing When Your Party is in Power? Guess Again”, I decided to look into how the market performed during different Presidential terms. It turns out that the stock market has historically outperformed during the second half of a President’s first term over the past 10-, 20-, 40-, and 60-year periods. The market did not simply outperform during these periods, it returned nearly two times the market average over the past 60 years and over ten times the market average over the past ten!

Fourteen of the sixty years I profiled were during the second half of a President’s first term. It is also important to note that for the purpose of this analysis, I considered President Ford’s and Johnson’s terms to be extensions of their predecessors given Kennedy’s assassination and Nixon’s untimely resignation that disrupted the normal course of a President’s typical term.

Not only have markets outperformed, but they outperformed regardless of which party was in the White House.

Why is this trend so persistent throughout history? I think the explanation is fairly straightforward. Of the four periods I examined, there is only one in which a President is solely focused on his reelection prospects – the second half of his first term. Any President who wants to keep his job will move heaven and earth to ensure the economy does well. The market even did well during Jimmy Carter’s last two years in his first and only term, averaging 19% versus an average loss of 5.2% during his first two years in office. Unfortunately for Carter, these numbers did not help his reelection prospects.