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Published: Tuesday, 8/10/2004

The market and presidential election history

The stock market has not been kind to George W. Bush, or to his re-election bid. He can cite numerous accomplishments, including tax cuts and terrorism defense. But despite a decent recovery from the lows of 2002, stocks are still stuck in the doldrums. Mr. Bush's predecessors in the last three-quarters of a century have generally done well in re-election campaigns when the stock market cooperated.

And maybe that bodes well for investors in coming weeks and months: Some experts believe Mr. Bush will now concentrate more on the economy, which could buoy stocks. In any case, he and the Democratic challenger, John Kerry, will likely crank up the rhetoric on their optimistic plans for the future.

The stock market needs some positive jolts to counteract the recent wave of bad news - record oil prices, terrorism threats, a costly war in Iraq, the slow growth of jobs, and prospects for higher interest rates and inflation. As it is, the three major stock indexes are all below where they stood when Mr. Bush took office. After a disastrous week on Wall Street, the Dow Jones industrial average closed Friday down 7 percent from where it was Jan. 20, 2001. The other indexes were down even more, 21 percent for the Standard & Poor's 500-stock average, and 36 percent for the Nasdaq composite index.

In the last seven decades, 13 incumbent presidents ran for re-election, but only two had to deal with rotten stock markets. During Herbert Hoover's administration, from 1929 to election eve 1932, the Dow plunged 79 percent (mostly after the infamous crash of 1929). The Republican was handily defeated by Democratic challenger Franklin D. Roosevelt.

Mr. Roosevelt himself overcame a nasty market downturn. By election eve of his second administration, the Dow had dropped 27 percent since inauguration. But, with World War II looming, the popular president coasted to another victory.

Others winning re-election after stock-market gains were Harry Truman, Dwight Eisenhower, Lyndon Johnson, Richard Nixon, Ronald Reagan, and Bill Clinton.

Three of the biggest beneficiaries of rising markets were Mr. Roosevelt, whose first term saw a 317 percent gain in the Dow by election eve 1936; Mr. Eisenhower, with the Dow up 72 percent and the S&P 500 up 82 percent by election time in 1956 (the Nasdaq wasn't created until 1971), and Mr. Clinton, in whose first term all three indexes gained 63-86 percent before election day 1996.

Three of the 13 incumbents were blessed with rising stock markets but lost anyway - Gerald Ford in 1976, Jimmy Carter in 1980, and Mr. Bush's father, George H.W. Bush, in 1992.

Mr. Ford, the Republican vice president who took over as President when Richard Nixon resigned 30 years ago this week, had too many other problems to overcome. Even though stock indexes gained 24-28 percent, his administration suffered from recession, inflation, the Vietnam War, and his pardon of Mr. Nixon.

Democrat Jimmy Carter could not blame his defeat on stocks: The Dow was down just 2 percent by election time in 1980, the S&P 500 was up 25 percent, and the Nasdaq had risen 99 percent. But he struggled with inflation, an energy crisis, and Iran's holding of American hostages for more than a year.

The elder Mr. Bush led the United States into the first war in Iraq, but he lost to Bill Clinton, mostly because of domestic issues, including a recession and a sputtering economy - even though the indexes were up 46-55 percent.

If George W. Bush is able to reinvigorate the stock market, that would be a wonderful thing for investors. But, just to get the indexes back to dead-even during his term, the Dow would have to gain more than 772 points, the S&P 500 more than 277, and the Nasdaq nearly 1,000. If history is any clue, that's a tall order. Almost all of Mr. Bush's predecessors in the last seven decades already had decent stock-market gains behind them in the final weeks before election time.



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