Dow rises faster with Dems Market officials still prefer Bush to Clinton.

July 20, 1992|By San Francisco Chronicle

The conventional wisdom says that the stock market prefers Republican presidents, but history shows that it often rises faster under Democrats.

This century, the Dow Jones industrial average has risen an average of 7.3 percent a year under Republican presidents compared with 10.1 percent in Democratic administrations, according to the Hirsch Organization of Old Tappan, N.J.

Nevertheless, most stock-market professionals would rather see Republican George Bush win in November than Democrat Bill Clinton.

"People who control assets in the stock market tend to be wealthy, and wealthy people tend to vote Republican because they have assets and income that can be taxed," said John rTC Manley, a managing director with Smith Barney.

The stereotypical Democrat likes to increase government spending, which often stimulates the economy and boosts corporate profits and stock prices. But it also tends to raise interest rates, inflation and taxes, all of which are anathema to stock-market investors.

Stock-market historian Yale Hirsch points out that even though investors have done better under Democrats this century, after inflation, they have fared better under Republicans. But that's due in large part to deflation in the early 1930s under Republican President Hoover.

Fairly or not, Democrats also are considered less hospitable to business, and more likely to meddle in the financial markets.

What spooks investors most, however, is the uncertainty posed by the Clinton-Gore ticket.

Bill and Hillary Clinton and Albert and Tipper Gore "are an exciting foursome," said New York money manager Robert Stovall, president of Stovall/Twenty-first Advisers. "But the stock market loves boring presidents."

Byron Wien, U.S. investment strategist for Morgan Stanley, thinks the market would do best under Mr. Bush because "he's a predictable commodity. He didn't do much one way or the other during his first term and he won't do much during his second. The economy will recover modestly by itself."

According to polls, most investment professionals think Mr. Bush will win, "which is why equities continue to do better than people think they ought to," Mr. Stovall said.

Mike Englund, director of research with MMS International, predicts that "through November, the market will trade up on news that's positive for Bush." The market rallied briefly last Thursday after Ross Perot announced he would not run for president, which was interpreted as favorable for Mr. Bush.

Next year, experts predict that the market will have a tough time, regardless of who wins. Since 1900, the Dow has risen 9.8 percent on average during election years, compared with just 3.5 percent during post-election years, Mr. Hirsch said.

Over the same period, the Dow rose 4.3 percent on average during post-election years with a Republican in the White House, compared with 2.4 percent for Democrats.

But since 1945, the market rose a meager 0.5 percent the year after a Republican victory, compared with 14 percent for Democrats.

Longer term, investors' greatest fear is that a Democratic president, with a Democratic Congress, would embark on a spending binge.

Some market watchers say a Democratic victory could break the deadlock between Congress and the president and produce legislation that would get the economy moving.

"We could have had better growth over the past year, but the Democrats didn't want to go along with anything that would make Bush look good," said Allen Sinai, chief economist with The Boston Co.

The big question is whether any legislation is a short-term fix or promotes long-term improvements in U.S. productivity, efficiency and competitiveness.

"If the legislation takes savings out of defense and puts it into infrastructure improvements, that's positive. And it has a better chance of passing under Democrats" he said.

A tax credit for first-time homebuyers would bolster the home building industry, "but it wouldn't do much for productivity growth," he said.

Charles Clough, chief investment strategist for Merrill Lynch, said that both candidates want to promote capital spending -- Bush apparently through capital gains tax cuts and Clinton through a combination of tax increases on the wealthy and targeted investment tax credits.

"Bush would probably be better better for the market, but I'm not sure the Democrats would be all that bad," he said.

Richard Hoey, chief economist with the Dreyfus Corp. mutual fund group, said the victor is less important than the margin of victory.

"What would be best is a presidential candidate with a mandate for action," he said. "A strong Clinton victory would be better than a narrow win by Bush. The issue is: Can the president govern?"

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