As Bull Market Nears a Birthday, Few Seem Ready to Celebrate
The New York Times
September 24, 2004
By FLOYD NORRIS
TWO years ago, gloom hung over stock markets around the world.
The bear markets that began after the technology bubble burst in 2000
had grown worse after the Sept. 11 terrorist attacks. The American stock
market suffered its deepest plunge - 49 percent from top to bottom - since
the Great Depression.
But all that ended with a bang. Markets in most countries hit bottom on
Oct. 9, 2002, and rallied sharply. A spring retrenchment sent some to new lows,
but they then came roaring back. Now stocks around the world are generally
trading for at least 40 percent more than they fetched at the 2002 lows.
This week both the Organization for Economic Cooperation and Development
and the Asian Development Bank released optimistic forecasts.
But with the second anniversary approaching, few seem ready to celebrate.
The bull has been limping this year, with markets trading in narrow ranges
after hitting highs in the spring. There is a sense, in Europe and America,
that the world is out of control, with jobs moving away and governments
unable to solve real problems. Unfortunately, stock market history indicates
big gains may not be on the immediate horizon. The third years of bull markets
are seldom a lot of fun, as Sam Stovall, the chief investment strategist at
Standard & Poor's, notes. This is the 10th bull market since the end of
World War II, using the definition that a bull market requires a 20 percent
gain and continues until a decline of at least 20 percent begins, and in
only two of the previous nine has the third year posted a gain of more than
10 percent. The average is a rise of less than 1 percent, and three bulls
died in their third year.
This bull market began with a surge that surprised a lot of pessimists,
but over all it has been a bit subpar. The Standard & Poor's 500-stock
index rose 33.7 percent in its first year, three percentage points below
average, and 6.7 percent so far in its second, about half the average.
Then there is the presidential election cycle. Much Wall Street commentary
assumes that the stock market will do better if President Bush gets a
second term and worse if he is defeated, in part because of concerns
that Senator John Kerry might roll back some tax cuts that have been
particularly beneficial to investors.
But history shows that since 1945, the stock market has risen
in the first year of six of seven Democratic terms and fallen in the
first year of six of the eight Republican ones. On average, Democrats
produce gains of 14.3 percent in the S.& P. 500 while Republicans
show losses of 2.4 percent. In no other year of presidential terms
is there such a difference between the parties.
That could be coincidence, of course, but there are explanations that
make sense. Democrats, who are almost always viewed with suspicion
by Wall Street as they enter office, may be eager to stimulate the economy
immediately. Republicans may be more willing to take recessions early
in their terms, particularly if they are succeeding a Democrat. They can blame
the predecessor for the downturn, as the Bush campaign has done this year,
and hope that a good recovery will be under way before the next election.
A recession started in the first year of office of every Republican president
who replaced a Democrat since World War II - Dwight D. Eisenhower,
Richard M. Nixon, Ronald Reagan and George W. Bush. By contrast,
the last Democrat to have that happen after replacing a Republican was
Woodrow Wilson in 1913.
This year's election may yet turn on Iraq. But so far as the economy goes,
President Bush has sought to follow in the footsteps of three presidents
under whom recessions turned to recoveries in time to win second terms
with ease. The tepid stock market this year illustrates how little enthusiasm
this recovery is producing as the election nears.
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