Presidential terms and stocks: a bullish theory
West Layfayette, Ind. — In their quest to find patterns in numbers, Purdue University statisticians think they've come up with an encouraging reading of the recent surge in the stock market.
If history keeps repeating itself, says Purdue Profs. Gary Schlarbaum and Roger Huang, the rest of the Reagan administration should be good years for Wall Street. Their study looked at stock market returns during the presidential terms from Andrew Jackson through Jimmy Carter.
According to Professor Schlarbaum, the average annual return on common stocks in the second two years of a president's term were higher - by between 5 and 25 percent - than the average returns in the first two years. This pattern was particularly strong from 1961 to 1980. He adds that the recent stock market rally, which began in mid-August, is ahead of schedule.
In the first two years in office, he says, a president tries to squeeze out excesses like inflation, from the previous administration. But to get reelected, he tries to '' 'heat up' the economy prior to an election by cutting taxes and increasing government spending.''