As the election nears (Tuesday November 4th for those living under a rock), I figured it would be interesting to compare how well the markets performed under both an Obama and McCain Administration (assuming historical trends)

The Standard & Poor’s 500 Index has outperformed under a Democratic administration, with average annual returns of 8.9% compared with 0.4% under the Republican White House. The worst years of the Great Depression occurred under Republican Herbert Hoover, and now the Credit Crisis under George W. Bush. Democrats enjoyed nice run ups following WWII and the 1990’s.

With Barack Obama showing significant strength in both national polls and a commanding lead in the electoral map, what should Wall Street expect as they look to efficiently price in the election result?
Since 1900, the Dow Average rose 9.8% in the 12 months after the Democratic Party claims the White House, based on the median change following the election of seven Democratic administrations from Woodrow Wilson to Bill Clinton. Only twice did the average decline, after Wilson’s victory in 1912 and Jimmy Carter’s in 1976.

There could be a few explanations as to the wide disparity between the two. Keynesian economics of the Democrats vs. Classical economics and the trickle down approach of the GOP. Democrats favor more regulation of the financial markets, from the formation of the SEC, the Investment Advisors Act, to the Uniform Securities Act. Such regulation and oversight, as can be witnessed today, instills confidence in system. Democrats are more likely to, which has been famously snipped out of an Obama answer, “spread the wealth around” through larger government spending on education and infrastructure which may stimulate the economy more broadly than a directly targeted tax cut under the GOP platform. In addition, deficit spending, a hallmark of the new neo conservatism movement, may hinder economic growth in the form of bigger federal deficits and higher interest rates (the crowding out theory where larger federal spending increases interest rates to tame inflation while in the meantime making private sector investment to expensive)

Whatever happens Tuesday, there will be a new administration facing enormous obstacles. Their approaches to solve these issues couldn’t have a clearer contrast.
To sum up, GO VOTE!