U.S. Stocks' Decline in Bush's First Months Worst Since Ford
By David Wells
New York, July 8 (Bloomberg) -- The U.S. stock market's swoon during the first five months of the George W. Bush administration has been the worst for any president since Richard Nixon resigned and Gerald Ford succeeded him in 1974
The Standard & Poor's 500 Index has fallen 10.8 percent since Bush's inauguration, the second-worst performance for that period among the last 10 presidents beginning with Dwight Eisenhower in 1952. In the bond market, the 30-year bond has returned 1.1 percent after the Federal Reserve lowered the interest rates on overnight loans among banks from 6.5 percent to 3.75 percent -- the largest decline in U.S. interest rates during a six-month period in 19 years.
Bush was elected on a platform extolling tax cuts, investor- directed Social Security accounts, fast-track trade laws and an energy program geared to producers. That hasn't translated into higher market performance because the economy was already slowing, analysts said.
Bush inherited ``the downside of the boom'' from the Clinton years, said David Hale, chief economist at Zurich Financial Services AG in Chicago.
The U.S. economy went from an 8.3 percent growth rate at the end of 1999 to less than 2 percent by the time of the November election. Stocks had tumbled 12 percent from a peak in March 2000 as companies forecast lower sales and profit and cut jobs, and as hundreds of Internet companies shut down.
Now, it may take time to determine whether the biggest income tax cut in 20 years, passed last month, and other executive branch initiatives will lift investor optimism in the months or years to come, analysts said.
Four-Year Cycle
``In a four-year cycle, is the president responsible? Yes, he has a big part of it,'' said Allen Meyers, who helps manage $3 billion at Fifth Third Investment Advisors in Grand Rapids, Michigan. Bush is ``doing all the right things, but it's too early to tell either way.''
If history is a guide, investors may be smart to bet on markets climbing by the time Bush's four-year term ends in January 2005. The S&P 500 has risen during the first term of every president except Nixon since 1953. It dropped 4.9 percent in Nixon's first five months in office and continued sliding, registering a 6.1 percent drop by the time his term ended.
Since 1952, the worst S&P performance in the first five months -- a 12 percent drop -- came after Ford's inauguration in August 1974, following Nixon's resignation in the wake of the Watergate scandal. The U.S. was in the middle of the longest recession since the Great Depression. By the time Ford left office two years later, the S&P 500 had jumped 28 percent.
In Dwight Eisenhower's first five months as president in 1953 the S&P Index dropped 8.8 percent, with the economy also on the brink of recession. When his second term began in 1957, the S&P was up 71 percent -- second best only to Bill Clinton's first four years, when stocks rose 79 percent.
The other president whose term was opened by a decline in the S&P 500 in his first five months was Jimmy Carter. The index dropped 2.1 percent during the period only to rise by 30 percent four years later.
Kennedy and Reagan
President John F. Kennedy's term was ushered in with a 8.6 percent rise in the S&P over five months, and during Lyndon Johnson's first months it rose 16 percent. In Ronald Reagan's first five months in office the S&P 500 Index increase 0.5 percent, and for Clinton the increase was 3 percent.
Under Bush's father, former President George Bush, the Index rose 12 percent in his first five months and 52 percent by the end of his term. Like the increases in the index during the presidencies of Ford and Carter, both 30 percent, the rise of the S&P Index wasn't enough to win him a second term.
Under Bush, the best-performing industry groups in the first five months since he took office have been engineering and construction, up 36 percent, followed by hospital management, up 32 percent and steel makers, up 30 percent.
Biggest Declines
Companies in the telecommunications industry were among the biggest decliners, with the industry indexes for electronic semi- conductors, long-distance telecommunications and computer systems falling about 30 percent. Shares of communication-equipment makers plunged 66 percent, according to S&P group indexes.
By comparison, under Clinton, commodities benefited in the first five months, with gold and oil and gas drilling companies registering gains of 54 percent and 50 percent, respectively. Tobacco stocks fell 27 percent during the same period and healthcare shares declined 42 percent.
The total return on 30-year bonds was 1.1 percent during the first five months Bush has been in office. The comparable returns for Clinton was 9.6 percent and 9.8 percent during Bush's father's term.
Investors said the economy isn't likely to respond for years to the $1.35 trillion tax cut Bush signed into law on June 7, which includes provisions that don't take hold until 2010. That's the case even though 95 million people will get rebates of $300 to $600 as soon as next month, they said.
The tax plan ``will improve the economy over time, which will reflect on corporate profits and the stock market,'' said Lawrence Kudlow, an economist who worked for the Office of Management and Budget during Ronald Reagan's first term.
``The major impact of the tax cut will hit in the middle of the decade,'' he said. ``If Bush gets re-elected, he'll benefit. Or his successor will.''
Capital Gains
The tax package didn't include a plan to slice capital gains taxes, a more direct way to boost markets, analysts said. Cutting taxes on investment returns could ``reawaken'' the initial public offering and venture capital markets, which have dried up as stocks fell, Kudlow said.
It may also be a long road before markets get a boost from individuals investing social security funds in stocks, bonds or mutual funds. Lawmakers are waiting for a Bush commission established June 11 to recommend how to carry out investing the money.
So-called fast track trade legislation, enabling the president to forge trade accords that Congress would have to accept or reject without modification, has been denied the White House since 1994. Bush on June 18 kicked off his drive to back a Republican sponsored bill that would strengthen trade-negotiating power, opening up new markets to U.S. companies.
One industry that has benefited during the Bush presidency is energy. Shares of companies that explore for oil and natural gas surged in 2000, boosted by record natural gas prices and oil prices that hit levels not seen since the Gulf War.
The S&P oil exploration and production index returned 67 percent in 2000, helped when it became apparent that Bush, who favors opening U.S. lands for production to offset imports, would win the election.
That index has fallen 22 percent this year as demand declined and as Bush's energy plan was set back by an unresponsive public and Democrats taking control of the Senate.
While these plans may help markets over time, investors now are looking ahead only a few months, and anticipating a faster economy as lower interest rates trigger consumer and corporate spending.
``The markets look at the state of the economy and what the Federal Reserve is doing,'' said Mitch Stapley, who helps manage $4 billion of fixed-income assets at Fifth Third Investment Advisors in Grand Rapids, Michigan. ``They're forward-looking --by at least six months.''
Even as interest rates have declined and stocks have fallen, the dollar strengthened against every major currency this year during Bush's first months in office with the exception of the Mexican peso, which gained almost 8 percent. The yen fell 5.4 percent against the dollar in the January to June period and the euro declined 8.5 percent.
By contrast, during the Clinton administration's first five months in office the yen gained 14 percent; the biggest decliner among major currencies under Clinton was the South African Rand, which fell 5.3 percent.
President S&P 500 S&P 500
First 5 months First Term
Eisenhower - 8.8 percent +71 percent
Kennedy + 8.6 percent +19 percent
Johnson +16 percent +24 percent
Nixon - 4.9 percent - 6.1 percent
Ford -12 percent +30 percent
Carter - 2.1 percent +30 percent
Reagan + 0.5 percent +30 percent
Bush +12 percent +52 percent
Clinton +3 percent +79 percent
Bush -10.8 percent N/A |
