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Historical Perspectives on the Dow and a New President's First Year in Office12-07-16 | News

Historical Perspectives on the Dow and a New President's First Year in Office

The day before the election, Monday Nov. 7, the Dow Jones Industrial Average climbed 371 points. For that week the Dow gained 5.4%, its biggest jump since December 2011, finishing at 18847.66. On Tuesday Nov. 22, 2016, the Dow crossed the 19000 threshold for the first time, propelled by bank, industrial and health-care stocks.

In "Postelection Blues: Stocks Rise Before Elections, Then Often Slow" (Wall Street Journal https://tinyurl.com/hhpwhuh), John Prestbo, the former executive director of Dow Jones Indexes, wrote that for the 12 months prior to the election, the Dow rose only 1.6%. Prestbo said the gain was mostly the result of the Dow soaring 371 points on Nov. 7, 2016, the day before the election, the largest rise for the Dow since January 2016. It was generally attributed to the FBI announcement that the latest Clinton email inquiry did not warrant further investigation.

Prestbo said the Dow reveals "definite patterns over the past 120 years that are worth heeding." He explains that "Democrats prevailed 14 times in the past 30 elections, and in the one-year periods after those elections, the median performance of the Dow was a rise of 6.9%. Republicans won 16 times in the past 30 elections, posting a median 4.1% advance one year later."

In six of those 30 elections, a Republican candidate ousted the Democrat incumbent. In those cases the Dow's median performance during the new president's first year was a 9% drop. In the 2000 Bush vs Gore election, for example, the Dow rose 2.3% in the 12 months prior to the election but fell 12.5% over the next 12 months, a period that included the 9/11 attacks.

In six of those 30 elections, a Democrat candidate ousted the Republican incumbent. In those cases the Dow's median performance during the new president's first year was a 7.7% rise.