We probably don’t have to tell you that being in the stock market in 2009 has been like spending six months on Coney Island’s Cyclone roller coaster—turn by turn a terrifying and exhilarating ride.
In the graphic below, the blue line shows the performance of the S&P 500 since Barack Obama became president on January 20, while the red line is the average performance of that index for each presidential term going back to Dwight Eisenhower’s first term in 1953.
The Presidential Election Cycle is one of the many commodity seasonal and other cycles that we monitor to help inform our investment decisions.
The typical pattern for the first five-plus months of a presidential term is mostly sideways as new administrations take shape and second-termers reshuffle people and set new priorities.
But President Obama didn’t have the luxury of an easing-in period, since markets were already in deep distress when he took the oath of office.
After a brief inauguration rally, the sharp downward trend continued until a bottoming-out in early March, with the S&P 500 falling more than 16 percent from the time the new president took his left hand off the bible.
I was in New York in early March, and never had I seen so much negativity among those in the investing world. Even members of the financial media, who are supposed to keep an arm’s length distance from the news, were openly in despair about the markets.
After the S&P 500 closed at a decade low on March 9, there came a series of events in Washington that gave me confidence at the time that we had finally seen the bottom.
On March 10, Congress let it be known that the uptick rule for short sales would be restored in some form. The same day, President Obama signed a $410 billion economic stimulus measure.
A couple of days later, at a committee hearing in the House of Representatives, the head of the board overseeing accounting standards said new guidance was coming on applying FAS 157’s mark-to-market rules—these rules compelled major banks and other financial companies to write down many billions of dollars worth of securities on their books, weakening them to the point that they required many billions of federal dollars just to stay alive.
Less than a week after that, the Federal Reserve announced it would buy up to $1.5 trillion in mortgage-related securities this year and another $300 billion in long-term Treasury debt. And soon after came the G-20 meeting in London, where the major countries of the world committed more than $1 trillion to a global recovery plan.
All of this good news injected optimism into the market. By the end of April, the S&P 500 was up nearly 30 percent from its March low and it gained another 8 percent by mid-June before flattening out at a level well above the average for this point in a presidential term.
Dramatic ups and downs can be exciting at an amusement park, but no one wants to see that kind of volatility in their investment portfolio.
More positive indicators are emerging, so as we start the second half of 2009, we are increasingly confident that the Cyclone-like thrill ride that has marked President Obama’s tenure so far will be replaced by steadier and more sustainable markets.
