Who's Better for Stocks, McCain or Obama?

Who would be better for the stock market, President Barack Obama or President John McCain? One way to look at this issue is to see how stocks have done under past Democratic and Republican presidents. My pal Donald Luskin, chief investment strategist at Trend Macrolytics, slices and dices the data in today's Wall Street Journal. Among his financial and economic findings:

1) Investors seemingly like donkeys. Since 1948, the total return of the S&P 500 has averaged 15.6 percent with a Democrat in the White House and 11.1 percent with a Republican occupying the Oval Office.

2) Stocks have followed the economy. GDP growth has averaged 4.2 percent under Democratic presidents and 2.8 percent under Republican ones. (If you "lag" the results so you credit economic growth in a given year to the president from two years earlier, the GDP results are 3.5 percent for the Democrats, 3.2 percent for the Republicans. But the market still follows growth.)

3) Polices are more important than parties. Bill Clinton (free trader, capital-gains tax cuts, balanced budgets) and JFK (another tax cutter) could be considered Republicanesque in their policies. Richard Nixon (wage and price controls) and George H. W. Bush (tax hikes) were not. Flip those guys into the opposite columns, Luskin says, and you find that the market is now up an average of 14.7 percent under the GOP and 10.5 percent under the Dems.

4) Investors like the GOP to run Congress. Stocks have averaged a 19 percent return when Republicans run Capitol Hill (with 3.7 percent average GDP growth) versus 11.9 percent (with average 3.2 percent GDP growth) when Democrats run the show.

5) The best mix for stocks is a pro-growth president and a GOP-led Congress. As Luskin points out, stocks have averaged a 17.5 percent annual return and real GDP growth has averaged 3.3 percent under that scenario.

Me: So that still leaves the question: Who is better for stocks, McCain or Obama? Both gentlemen have begun to focus more squarely on the question of economic growth. McCain's policies—keeping the 2001 and 2003 tax cuts, cutting corporate rates—are right in the traditional pro-growth policy sweet spot. Back in the spring and summer, Obama was still talking about fairness and equity rather than growth. But he has now shifted, saying, for instance, that he would consider delaying his tax increase if the economy were weak. And if you ask his advisers about Obamanomics, the first things they want to chat about are his middle-class tax cuts and his plan for using energy and infrastructure programs to create jobs. Obama is going for growth, but in his own way.

So who has the more pro-stock-market plan? Let me answer that this way: America has experienced a generation-long economic boom. And the Dow has gone from around 800 to around 12,000 today. The mix of policies that created that market surge were lower marginal tax rates, freer trade, less regulation, and low inflation. Basically, this is McCainomics. But Team Obama would argue that we are in a new era that requires a more activist government, both in terms of regulation and government investment spending. Obama also says that balancing the budget will have to take a back seat, for now, to his spending programs. And maybe Obama is right. Maybe "this time, it's different." But as longtime investors know, that attitude (remember Internet stocks in the 1990s? real estate values, like, yesterday?) has a pretty poor record on Wall Street.