Page last updated at 13:45 GMT, Wednesday, 5 November 2008

Could Obama be good news for shares?

Barack Obama
Stock markets tend to do well under Democratic presidents

No one knows how successful the new US president Barack Obama will be in tackling the US economic recession.

But whatever happens, history suggests that US stock markets will prosper under his presidency.

According to stock market historian David Schwartz, US markets have risen on average 10% in the first year of a Democratic presidency. In the first year of Republican presidency, they have risen less than 2%.

And this differential is not confined simply to an initial, feel-good bounce.

Dow Jones index 1993-2001

A 2006 study by Jeremy Siegel, a professor of finance at the Wharton School of the University of Pennsylvania, showed that from 1948 to February 2006, stock market returns averaged 15.3% a year under Democratic administrations, and just 9.5% a year under the Republicans.

Indeed, a recent study published in the New York Times showed that $10,000 (6,263) invested in the S&P 500 in 1929 would have grown to $11,733 if invested under Republican presidents, but to $300,671 under Democratic presidents.

The best president for stock markets was Bill Clinton. During his time in the White House, the S&P rose on average 15.2% a year, while the Dow Jones rose on average 28.3% a year.

UK investors

Dow Jones 2001-present

There is even better news for UK investors.

According to Mr Schwartz, in 11 out of the last 12 cases, UK share prices rose in the full trading week immediately following a US presidential election.

But don't invest your money just yet.

There is only an equal chance that the UK market will rise or fall in the three days directly following a US election, Mr Schwartz says.

And remember, as the small print always says, history is not a reliable guide to how shares will perform in future.

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