“Record highs” are a bit arbitrary, and meaningless.
James L.
T.
BlockedUnblockFollowFollowingApr 26From January 3rd, 1950, to April 24th, 2019, there were 1,251 days in which the S&P 500 closed with a “record high,” which is any number higher than the previously recorded “record high,” which can be as small as one digit.
Out of 17,438 days, that’s only 7% of days in which the numbers ticked up — or in most cases rocketed — to a new “all-time high.
”As far as I can gather, though, there’s nothing particularly astounding about reaching a new “all-time high” when we’ve been seeing these numbers inch up and up and up for more than 70 years.
To put this in greater perspective, only one president saw their entire time in office without seeing a new all-time high at least once, and that was Gerald Ford, who by all accounts got the short end of a political stick following Nixon’s resignation.
Below is a graph that shows the S&P 500 from 1950 to 2019.
The take away is that this index has increased by 17,540% since the beginning of 1950— which is a meaningless value other than to say it’s a lot higher than it used to be.
More to the point on arbitrary announcements of “all time highs” is the fact that on average, the S&P 500 has been growing at 1.
0058% every trading day.
(When we include weekends/holidays, when trading does not occur, we’re talking about 0.
69% per day — which still has the net impact of moving in an upwardly direction.
)Figure 1The second image shows two different measures.
The blue columns show the maximum value that the S&P reached during the entire tenure of each president.
Notice that each blue column is higher than the one before it (except for Gerald Ford — if you can make it out).
The green columns represent what the value of S&P was on the date that the president was sworn into office.
You’ll notice that the column from George W.
Bush to Barack Obama saw a very significant decrease — 37% — which was due to the recession.
This also occurred when President Ford was sword into office after Nixon resigned in August of 1974.
But generally, green columns should be higher for each president being sworn in from when their predecessor began.
Figure 2Below shows the growth (or loss — in red) from the closing value on the first inaugural address, to the last day in office.
For example, the S&P (which was then the S&P 90) closed at 26.
41 on Dwight D.
Eisenhower’s inaugural day, and on his last day as president it closed at 59.
77 — a 129% increase.
Whereas for President George W.
Bush, the economy had taken suffered with a negative-37% drop.
One way to look at this is to see that Richard Nixon and George W.
Bush left office with the S&P closing at a lower value than when they were sworn into office.
Figure 3The next image shows the growth from the minimum closing value and the maximum closing value during each president’s time in office (or the variance).
For example, the lowest closing value during Ronald Reagan’s presidency was 102.
42 and the maximum was 336.
77 — which is a 229% difference.
Figure 4The next image shows the percentage of days in office in which the S&P closed with a “new record high.
”Figure 5Take note that President Ford saw no record breaking days, and that President George W.
Bush saw the next minimum number of days, which was less than 1%.
The median was 7%.
It’s worth pointing out two things: Truman and Trump both have, respectfully, 1109 and 825 days of tenure reflected in these graphs.
In this regard, Truman saw 109 new “record highs”, and Trump has seen 80.
I suggest taking these data with caution because without full presidential terms, the data will be skewed.
For example, George W.
Bush saw technical growth, at the very least in perpetuation of a good economy, but then it tanked.
That’s the weakness of Figure 5, but in context of Figure 1 you can see it for what it is worth.
Carrying on this same trend, we don’t see that there were no “record highs” under President Barack Obama’s first term.
All of his growth took place int he last three years as president — which is astounding.
If we were to break this graph down by term, we would see that in Obama’s first 825 days of his second term, he saw 104 new “record highs” — which is 20% higher than Trump’s current first term.
Why the S&P 500?Standard & Poor’s, i.
e.
, S&P, has been around since 1860, but the modern version of it was the result of the merger between Poor’s Publishing and Standard Statistics Bureau in 1941.
Prior to this merger, Poor’s Publishing had created its first “composite index” in 1923.
From 1926 to 1957, the composite index was made up of 90 stocks, therein called S&P 90.
In 1957 this index was expanded to 500, although today it is 505.
The Nasdaq composite was founded in 1971, so I thought it would be good to add 21 years of data for the sake of trends.
The Dow Jones Industrial average (DJI), although it has been around for a while, these stocks are included in the S&P 500, so it would be redundant to do a secondary analysis with DJI.
Additionally, S&P is representative of the industries in the market which makes it an ideal benchmark for analysis.
How I Got the Number of “Record Highs”I downloaded the data from Yahoo, and then painstakingly put a 1 next to each value that was higher than the previous recorded high, and therefore constituted a “new high”.
For example:110.
55 | 1111.
00 | 1108.
87 | 0105.
20 | 0114.
68 | 1114.
68 | 0For all 17,438 recorded days.
I then tallied (summed) the number of days by each president to arrive at the total number of days in which the S&P 500 closed with a “new high.
” I rounded by two decimals (although Yahoo gave upwards of 10) for the sake of finding newly recorded highs.
You might be thinking “well that’s an arbitrary” decision, which is true, but consider that “record S&P highs” are fairly small.
But, the primary reason behind my decision to stick to two decimal points is because that’s how the index is typically shown.
This means that in my analysis a 15.
01 would be considered a new high if the previous record was 15.
00.
What impact do presidents have on the economy, or the S&P 500?Research suggests very little.
A working paper by Alan Blinder and Mark Watson (National Bureau of Economic Research) found that Democratic presidents see a 1.
8% higher growth rate in GDP than do Republican presidents, but explained at least 50% of this away by market factors that are outside of the president’s control — like oil shocks, consumer spending, etc.
In effect, they determined that Republicans have poorer luck with regard to that, but experience more stable economies, whereas Democrats see greater growth, fewer problems, and more vulnerability.
Similar points — that president’s have little to no control over the economy — have been made by folks at FiveThirtyEight, The Atlantic, The New York Times, the National Review, and Bloomberg.
The lessons are this: 1) presidents have very little impact on the economy in real time, with the largest overall impact being their choice of Fed Chairman, but this even has a minimal impact.
2) Luck, however you want to measure or define it, has a larger impact.
Presidents who are elected in the middle of a recession (ex.
Ford, Obama), have a lot to do when starting.
3) Economic policy tends to have an impact long after the respective president has left office.
It takes years.
ConclusionWhile it is exciting to see “record breaking” digits, it’s all in context of something, and almost entirely in context of something that well outside the confines of the West Wing (or the golf course).
For example, the rally that resulted in a new all time high for the S&P 500 on April 23rd was more exciting because it made up for the losses that had been taking place since September (which was more than 25 points).
That context is more exciting from an economic standpoint than the fact that the S&P set a new record .
But consider that the S&P 500 and other market indices have no theoretical maximum value, which is to say that it will continue to move in an upwardly direction forever (outside of bear markets, recessions, depressions, and typical fluctuation).
More to the whole point of this article is that it is arbitrary to continue to boast “new record highs”, not simply because unless capitalism, inflation, markets, etc.
, cease to exist, but because its a forgone conclusion.
For example, with exception of Gerald Ford, every president saw a record high.
Figure 6The image above shows the average number of “record highs” in a given 30-day period for each president.
For example, Donald Trump currently sees a new record high about once every 10-days.
President Obama saw a new record about every 23 days.
But, for perspective, Obama didn’t begin seeing new records set until March 28th, 2013 (well into his second term).
Once this began, he saw a new record set every 11 days.
Richard Nixon saw a new record once every 58 days, and George W.
Bush only saw a new record every 325 days — which makes sense because the economy crashed.
The purpose of this image is to emphasize the point that we’re going to see an average of a new record high about once a week.
What this will actually look like is that we’ll go weeks or months with drops, and stagnation, and then a few record setting days.
Kind of like what we’re seeing now on April 23rd, and then again on April 26th in which Market Watch exclaimed twice in one week that we saw “new records” set with S&P 500.
Context matters, and I would say it’s what differentiates good news from arbitrary news.
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