“Global share prices have been on a tear since Donald Trump’s victory in last November’s US election, buoyed by hopes that his plans to cut taxes, push for deregulation and increase infrastructure spending will fuel growth and inflation, replicating what many see as a market-friendly package of reforms to match that launched by Ronald Reagan after his 1980 triumph over Jimmy Carter.
“However, investors might like to consider that the Dow Jones Industrials initially ran up strongly on the news of Reagan’s November 1980 victory only to completely lose momentum after his inauguration on 20 January 1981, in a classic case of “buy on the rumour, sell on the fact”.
“Last Wednesday’s press conference ultimately failed to provide any firm details on how Trump intends to push through his planned programme (or how he intends to fund it) so the market will start looking for firm proposals pretty quickly once he starts work in earnest on Monday 23 January.
“Failure to deliver concrete proposals could spread further doubt, eroding the support for stocks and the dollar and giving bonds a fresh boost. A poor year for US stocks would be oddly in keeping in with the historic trend evidenced by the first terms of Republican Presidents since the Second World War.
“The Dow Jones has declined on eight of nine occasions during the first year of a Republican Presidency and it has fallen on all four occasions when a Republican has taken the reigns from a Democrat.
“The average first-year drop under post-war Republicans of 1.2% compares to an average 13.2% gain under Democrats:
Performance of the Dow Jones Industrials in the first year of post-war Presidencies
Election | President | Party | Year 1 |
1948 | Harry S. Truman | Democrat | 12.9% |
1952 | Dwight D. Eisenhower | Republican | -3.8% |
1956 | Dwight D. Eisenhower | Republican | -12.8% |
1960 | John F. Kennedy * | Democrat | 18.7% |
1964 | Lyndon B. Johnson | Democrat | 10.9% |
1968 | Richard M. Nixon | Republican | -15.2% |
1972 | Richard M. Nixon ** | Republican | -16.6% |
1976 | Jimmy Carter | Democrat | -17.3% |
1980 | Ronald Reagan | Republican | -9.2% |
1984 | Ronald Reagan | Republican | 27.7% |
1988 | George H. W. Bush | Republican | 27.0% |
1992 | Bill Clinton | Democrat | 13.7% |
1996 | Bill Clinton | Democrat | 22.6% |
2000 | George W. Bush | Republican | -7.1% |
2004 | George W. Bush | Republican | -0.6% |
2008 | Barack Obama | Democrat | 17.5% |
2012 | Barack Obama | Democrat | 26.5% |
|
|
|
|
| Average |
| 5.6% |
| Average - Democrat |
| 13.2% |
| Average - Republican |
| -1.2% |
Source: Thomson Reuters Datastream
*John F. Kennedy assassinated in November 1963 and replaced by Lyndon B. Johnson
**Richard M. Nixon resigned August 1974 and replaced by Gerald R. Ford
“In fairness, bulls do have three things on their side.
1) Trump is hardly a classical Republican and he has little apparent affiliation with broader party dogma
2) The market may have started slowly under Reagan but it then rose strongly for the six of the next seven quarters
3) The one occasion when the US stock market rose in the first year of a Republican Presidency came during the opening 12 months of Reagan’s second term
“Key differences must however be overcome, as when Reagan took office, interest rates and inflation were both in the double-digits (and falling) and the national Government debt represented just 30% of GDP. This compare to interest rates of 0.75%, inflation of 1.7% (and rising) and Government debt of 100% of GDP now, so Trump may find he has a lot less room for manoeuvre than his illustrious predecessor.”