January 19th, 2009
04:29 PM ET
14 years ago

Wall Street's inauguration rally

[cnn-photo-caption image= http://i2.cdn.turner.com/cnn/2009/images/01/19/art.nyse.gi.jpg caption="How long will Wall Street's post-inaugural celebration last?"]NEW YORK (CNNMoney.com) - Optimism about Barack Obama's first 100 days as president is running high, but Wall Street's post-inaugural celebration may well be short-lived.

"I think there's going to be something of an Obama honeymoon for a few weeks," said Terry L. Morris, senior equity manager at National Penn Investor Trust. "But I think there's still a lot of pessimism out there about the economy."

Since 1932, stocks, as measured by the S&P 500, have gained an average of 1.6 percent in the first 100 days of a new president's term regardless of the party.

The S&P 500 has gained 0.9 percent on average under a Republican president and 2.2 percent under a Democrat like Obama, according to research by Standard & Poor's chief investment strategist Sam Stovall.

While a gain is a gain, a 2.2 percent rise following a year in which the S&P 500 lost 38 percent – and saw its worst year since the 1930s – does not suggest the rallying cry of a new bull market.

In fact, Wall Street could very well see the same market reaction that briefly followed both the November election and the start to 2009, said Joe Arnold, wealth manager at Dawson Wealth Management.

"Both times, the optimism had an emotional effect on the stock market for a few days or weeks," said Dawson. "But then the happiness wore off and people returned to the reality that we are still in this crisis and we don't know when it's going to end."

Similar to the first 100 days, stocks tend to perform better for the rest of the year when the Democrats are in power, according to S&P. In the subsequent eight months, stocks on average lose 7.7 percent under Republicans and gain 4.8 percent under Democrats going back to 1932.

"Election year history favors a Democratic president, but nothing is certain in this world except death, taxes and volatility – of share prices and emotion," wrote Sam Stovall, S&P's chief investment strategist in a recent note.

He noted that investors tend to approach the periods surrounding a new president's term with optimism, despite a lack of convincing evidence to justify those rose-colored glasses. Although the first 100 days and the full year are positive on average, there have been plenty of exceptions.

In the 19 election years since 1932, stocks only posted full-year gains 60 percent of the time under Democrats and 55 percent of the time under Republicans.

The hope surrounding Obama's election has been compared to the hope felt after John F. Kennedy's election in 1960.

For Wall Street, that optimism correlated with higher stock prices. During the first 100 days of JFK's administration, the S&P 500 gained 8.9 percent. It gained another 9.6 percent in the rest of the year, according to S&P.

But the stock reaction is likely to be different this time as President-elect Obama faces what many describe as the worst financial crisis since the Great Depression. Even with an $825 billion stimulus plan being debated in Congress and the likelihood of further capital infusions from the Federal Reserve, the recession isn't expected to be over until late this year or early next.

Also, investors may have already shown their enthusiasm for a new administration and the eventual end to the recession in the recent rallies. As a result, there may not be much of a follow-through this year.

Between the bear market lows of Nov. 20 and Jan. 6 of this year, the S&P 500 gained 24 percent. Since Jan. 6, the S&P 500 has lost 6 percent.

Stocks are perhaps due for a bigger bear market rally in the first half, but the outlook is so cloudy it's hard to see what could cause it, said Drew Kanaly, chairman and CEO at Kanaly Trust Company.

"I think a lot of investors are waiting for the new administration to come in," he said. "They want to see what they are going to do first before they start participating more fully in the market."

Filed under: Inauguration
soundoff (11 Responses)
  1. Proud American

    I sure hope I get some of the money back they stole from my 401K .

    January 19, 2009 04:34 pm at 4:34 pm |
  2. Baze

    Who says Obama couldn't run a private organization?

    January 19, 2009 04:40 pm at 4:40 pm |
  3. Jonathan in SC

    Well I think Obama has global warming licked... it is freezing cold here and a chance of snow tonight.

    January 19, 2009 04:41 pm at 4:41 pm |
  4. HopeWon2008

    I can't wait to read how the right wingers will blame President Obama for causing the stock market to drop. It's inevitable. America got it right this year. We picked the best man for the job. I voted for Obama even though I don't like arugala (dont even know what it is) and will never get the chance to sit down and have a beer with him because he's not a regular joe. Thank God about that. I want only the smartest people running my country. If i'm smarter then anyone in Obama's cabinet, God help us.

    January 19, 2009 04:54 pm at 4:54 pm |
  5. Michael, Houston Texas

    So basically any rise in the stock market will be inflated. Okay. Next news story.

    January 19, 2009 04:59 pm at 4:59 pm |
  6. Obama Victim

    you think it is bad now??? wait until Osama takes over....................these will be the good ole days

    January 19, 2009 05:15 pm at 5:15 pm |
  7. Griff

    I will not watch this Farce.. All Talking? But no real Input. A Fairy Story.
    The World is watching America once again... But things never really Change... Mr Obama goes to Washington!!!

    January 19, 2009 05:19 pm at 5:19 pm |
  8. Concern

    Where on earth is Rev. Jessie Jackson?

    January 19, 2009 06:08 pm at 6:08 pm |
  9. Texas Trail Kitty

    Wall Street should be flogged for what they have done to the American people. Greed IS NOT GOOD!!!!!!!!!!!!!!!!!!!!

    January 19, 2009 07:02 pm at 7:02 pm |
  10. Alice Newman Center Harbor NH

    "The S&P 500 has gained 0.9 percent on average under a Republican president and 2.2 percent under a Democrat like Obama... "

    Says quite a bit doesn't it! Go Obama! Bring hope and intelligence and civility and leadership to a country that is hungry for all of the above.

    January 19, 2009 07:04 pm at 7:04 pm |
  11. Pat J

    Too bad the Dow doesn't reflect the Obama euphoria!

    January 19, 2009 07:17 pm at 7:17 pm |