WSJ:
The Dow Jones Industrial Average leapt 889.35 points, or 10.9%, to 9065.12, aided by gains in all 30 of its components. The rally was its second-best this month, behind only the 936-point leap on Oct. 13 to break a painful eight-day losing streak.
There are still so many way undervalued stocks out there when compared with earnings. Depending on who wins the election, I'm as bullish as I've ever been. That's bullish. Not full of bs.
UPDATE: A commenter noted a couple of stories about the history of the stock market since 1948. (Why is it always since 1948? You would think they would like to include the years of the great FDR, but for some reason, though, they never do.)
Here is an excellent read by Don luskin taking on this assessment.
So there you go. Forget about the tax increases. Forget about the regulations, the protectionism, the union influence. Democrats are great for growth. The study proves it!
I've run the numbers myself. Superficially at least, the Democratic claims are true: Since 1948, the Standard & Poor's 500 total return (capital gains plus dividends) has averaged 15.6% when a Democrat was in the White House and only 11.1% when a Republican was in the White House...
But it's not so simple when you study that "study." First, not all Democrats act like Democrats, and not all Republicans act like Republicans. John F. Kennedy, for example, was an enthusiastic supply-side tax cutter, and George H.W. Bush raised taxes. Bill Clinton promoted free trade, and Richard Nixon imposed wage and price controls.
If you assign those four presidents to the opposite party based on that -- make the two Democrats into Republicans and the two Republicans into Democrats -- the numbers completely reverse. Now stocks average 14.7% under Republicans and only 10.5% under Democrats.
In fact, it turns out that if you do just one single switch -- if you make Richard Nixon into a Democrat -- it's enough to reverse the numbers. Then stocks average 14% under Republicans and only 12.1% under Democrats. This fact discredits this whole study more than it does Republicans, or even Richard Nixon himself. Any analysis that can be undone by omitting or changing a single data point isn't very robust.
There are other problems with this study as well. While stocks could be expected to react very quickly to changes and expectations of changes in the political environment, the whole economy doesn't just turn on a dime. So when we compare real GDP growth under Democratic and Republican presidents, maybe we should lag the results by a couple years. That is, we'll assume that the growth in a given year was the result of the president's policies from two years ago.
When we do that (putting Nixon back as a Republican, by the way), we find that the economy performed pretty much exactly the same regardless of the president's party: 3.5% under Democrats and 3.4% under Republicans.
The logic of those who just use the years of the administration is flat-out ridiculous. So Reagan gets credit for 1981 and 1982, years in which his drastic tax policy changes weren't in effect? Disastrous Carter-remnant years? And he doesn't get credit for the next two years after he left, and before Bush the Liberal raised taxes? Downright silly, and a dishonest way to look at things. Luskin then notes the impact of Congress:
Under Republican Congresses, stocks have averaged a 19% return, while under Democratic Congresses only 11.9%. Real GDP growth, lagged two years, has averaged 3.7% under Republican Congresses, and only 3.2% under Democratic ones.
Then there are the various party mixes between the president and Congress. If John McCain wins and we have a Republican president and a Democratic Congress, history leads us to expect an average 10.3% total return from stocks and 3.3% real GDP growth. If Barack Obama wins, and we have a Democratic Congress too, then according to history stocks will average 13.8%, and real GDP growth 3.3%.
But that's no argument for voting for Mr. Obama. Vote for Mr. McCain -- but vote for Republican senators and representatives too. When Republicans have controlled the whole government, it blows away anything Democrats can do. Stocks have averaged 17.5% and real GDP growth 3.3%.
By the way, as fond as Democrats are of saying how poorly stocks have performed under George W. Bush, here's a sobering fact: Stocks averaged 14.1% return in those Bush years when Republicans controlled Congress -- and when Democrats got in there and mucked things up, the average has been a loss of 8.9%. That's not even including 2008 year-to-date, which doesn't look so pretty.
If the electorate were really smart, it would elect a Democratic president and a Republican Congress. Under that deal, stocks have averaged a 20.2% total return, and real GDP averaged 4%. That tells us that economic and stock market success isn't really about partisan politics at all. Sadly, nobody has a political incentive to conduct a study about that.
One thing Luskin pointed out in the first quote is that fiscal conservatives at the helm have done much better than fiscal liberals. The D and the R have undergone some fairly big changes since Nixon's administration. But even ignoring that, I would say none of this proves anything, although Luskin's analysis is interesting. We have a sample size of like 10.
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