Many people throughout the United States and the world are viewing the inauguration today with a sense of hope. Hope that things (whatever things are important to each individual) are going to get better. This sense of hope is not unique to Barack Obama. It comes with every new President to take office. The question for us as traders is, “How has this sense of hope translated to stock market returns?”
I decided to look back to 1920 using the Dow to see how the market has reacted to past inaugurations. I limited the instances to only those inaugurations where a new president was entering office. I don’t think re-elections carry a sense of “new hope” the way a new president does. I also eliminated inaugurations of Presidents that weren’t elected (Ford in ’74, Johnson in ’63, Truman in ’45, and Coolidge in ‘23). I just don’t believe the same sense of excitement is generated by a replacement as by a newly elected president.
That left me with the following 11 instances:
March 4, 1921 – Warren G. Harding
March 4, 1929 – Herbert Hoover
March 4, 1933 – Franklin Roosevelt
January 20, 1953 – Dwight Eisenhower
January 20, 1961 – John Kennedy
January 20, 1969 – Richard Nixon
January 20, 1977 – James Carter
January 20, 1981 – Ronald Reagan
January 20, 1989 – George H.W. Bush
January 20, 1993 – William Clinton
January 20, 2001 – George W. Bush
First I looked to see how the market performed on the day of the inauguration. Surely the wonderful speeches and overall positive vibes would have had a positive affect on the market:
For an intermediate-term perspective below are the results for the 1st 75 trading days of the new presidency:
I’ve shown numerous studies the past few months comparing the current environment to the 1930’s. Perhaps the sense of hope brought on by new leadership today could help to ignite a strong (bear market) rally as it did 76 years ago.
Of course the main issues with this line of tests is that we are dealing with only 11 instances in 90 years. It would be quite dangerous to base any trades on just these results. I do find them interesting and somewhat notable, though.