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Thursday, October 08, 2020
US Presidents - Impact on SPX Returns & Volatility
*This performance is only observed with historical backtests and not traded by the company.
The flyer attempts to analyze the performance of SPX index & its volatility under different US Presidents. Accordingly, the statistics and corresponding analysis are given for Democrats and Republicans. The SPX data & US Presidential tenures have been taken from the year 1957 (SPX Index Creation Year) – September, 2020. Key summary along with table that contains the statistics is as given below.
- Will History Repeat Itself? Last 3 Presidents - Democratic Bill Clinton, Republican George Bush & Democratic Barack Obama got elected for 2nd term as well.
- History is so far in Republican's favor with 3 of its presidents getting elected for 2nd term as compared to 2 presidents for Democrats.
Key Observations on SPX Returns
- Since 1957, Democratic Presidents have served for a total of 28 years. Republican Presidents, on the other hand, have served for a total of 36 years including President Trump's current term.
- SPX has performed better under Democratic Presidents. Total SPX Returns under Democrats have been 327.80%. Under Republican Presidents, the total returns have been 204%.
- However, the returns are skewed in the sense that major market crashes/bubble bursts have happened during the tenure of Republican Presidents. For instance, the 2008 GFC impacted returns under Republican President George Bush(Jr). Similarly, President Nixon's horrific second term return of -47.91% was primarily on account of high inflation & oil crisis that took place during 1973 - 1974.
- For Democratic Presidents getting elected for 2nd term, the returns have been higher for 2nd term as compared to 1st term.
- For Republican Presidents, the returns for 2nd term have been much worse than 1st term (2/3 instances).
Key Observations on SPX Volatility
- Average Annualized Volatility under Republican President is 15.52%.
- Average Annualized Volatility under Democratic President is 13.39%.
- For Republican Presidents elected for 2nd term, the average volatility for 2nd term has increased as compared to 1st one.
- Current year's annualized volatility under Republican President Trump is set to surpass 2008 volatility (2020 YTD Volatility @ 33.53% v/s 2008 volatility of 41%)
Data Duration & Calculation Methodology
- Data Duration: 1st April, 1957 – 30th September, 2020.
- For uniformity, a complete year starting from January to December is taken into consideration. For instances where the US President has assumed office from September/October of a year, the data for returns & volatility calculation are taken from the starting of next year i.e. from January next year.
- For volatility calculation, daily volatility is annualized in order to get a holistic view of the volatility. Number of days for this calculation is as per the number of trading days in that particular year.
US Presidents – Impact on SPX Returns & Volatility
|Presidential Term Year||Average Annualized Volatility - 1st Term||Average Annualized Volatility - 2nd Term||1st Year SPX Returns Post Election - 1st Term||1st Year SPX Returns Post Election - 2nd Term||1st Term SPX Total Returns||2nd Term SPX Total Returns|
|1||Dwight D. Eisenhower||Republican||1957||1958||1959||1960||10.12%||-9.40%||32.52%|
|2||John F. Kennedy||Democratic||1961||1962||1963||11.04%||24.28%||32.88%|
|3||*Lyndon B. Johnson||Democratic||1964||1965||1966||1967||1968||8.14%||12.36%||37.32%|
|4||**Richard M. Nixon||Republican||1969||1970||1971||1972||1973||1974||10.87%||18.84%||-11.42%||-18.09%||15.78%||-47.91%|
|5||***Gerald R. Ford||Republican||1975||1976||13.32%||28.42%||46.64%|
|8||George Bush Sr.||Republican||1989||1990||1991||1992||13.27%||27.26%||51.51%|
|10||George Bush Jr.||Republican||2001||2002||2003||2004||2005||2006||2007||2008||18.89%||19.33%||-13.04%||3%||-1.03%||-18.30%|
*For Lyndon Johnson, includes partial term of 1 year & 2 months. Assumed Presidency following assasination of JFK
**For Richard Nixon, he could only serve partial term of 2 year out of his complete 2nd term tenure of 4 years. He had to resign due to Watergate Scandal
*** For Gerald Ford, he could only serve for 2 years as other 2 previoys years were served by Richard Nixon. When Nixon had to resign due to Watergate scandal, Gerald Ford (the then Vice President) automatically qualified to become US President
*Past performance is not indicative of and does not guarantee future results. Trading in markets may involve loss of capital.
Risks & Assumptions
Data Source: Bloomberg
Arun Leslie John
Chief Market Analyst
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