Many people study U.S. political history, others study U.S. economic history, and a relative few individuals look closely enough at both to see the strong connection -- specifically, the link between the performance of the stock market and the fortunes of the president.
The closer you look the more obvious the link becomes. Only fighting a war does as much to shape public perceptions of a U.S. president's performance during his term in office.
In the obviously limited space I have, I can make only a few sweeping observations. The bear market that began with the 1929 crash put the Democratic Party in office for the 20 years that followed the 1932 election. This string was broken when the Republicans nominated a war-hero, who took the White House in 1952. The Dow Industrials were approaching the pre-crash high, and Eisenhower became the dominant political figure during that bull market decade.
Democrats lost the White House again in 1968, almost three years after the Dow had reached a high that it would not finally surpass for nearly 17 years. Three U.S. presidents came and went during the bearish 1970s, one of whom resigned in disgrace.
The great bull market that began in the early 1980s helped keep Republicans in office for 14 years; a Democrat won by a plurality in 1992, yet the bull market saw him through two full terms of office, notwithstanding multiple scandals and impeachment.
Which brings us to the current Commander-In-Chief, a title which goes a long way toward explaining his reelection this past November. The 9/11 catastrophe, and the military invasion of two countries, tell you most of what you need to know about why George W. Bush won a second term. Yes, his term has included a three-year bear market (2000-2002), though it began before he took office; in truth he benefited from the 2003 market recovery.
Yet, because of his ambitious agenda to partially privatize Social Security, President Bush has directly linked his fortunes to the stock market to an unprecedented degree -- far more than he himself probably realizes.
For the better part of a century, the rule has been that the stock market horse pulls the cart that the president sits in: Going up or going down, the horse pulls the cart. Most people -- the media, Wall Street, the typical investor -- think it's the other way around. Knowing which way the horse will head during the next several year will not only help your portfolio, it will also tell you which party is the odds-on favorite to take the White House in 2008.