Obama Versus the S&P 500

Obama Versus the S&P 500
A troubling measure of economic distress.
by John Hayward
12/12/2011

If you pay any attention to business news, you’ve probably heard of the S&P 500. Many people know it’s an important metric of economic performance, without having given much thought to precisely what it represents.

Standard & Poor​’s is the firm that has already downgraded America’s credit rating, a move its two largest competitors – Moody’s and Fitch Ratings – have warned they might well follow in 2013. It’s a widely under-reported truth that many smaller agencies actually downgraded U.S. debt long before S&P did.

The S&P 500 Index is a list of five hundred heavily capitalized companies, selected from several key industries. These companies are mostly – but not exclusively – based in the United States. All of them are heavily traded, and widely held by American stockholders. Here’s how Standard and Poor’s describes the Index:

The S&P 500® has been widely regarded as the best single gauge of the large cap U.S. equities market since the index was first published in 1957. The index has over US$ 4.83 trillion benchmarked, with index assets comprising approximately US $ 1.1 trillion of this total. The index includes 500 leading companies in leading industries of the U.S. economy, capturing 75% coverage of U.S. equities.

The S&P 500 is, therefore, a widely respected measure of American economic activity. Its primary weakness in that regard is the requirement for high liquidity, meaning companies that don’t trade a lot of stock do not make the S&P 500, even if they’re large and important players in their industries. Still, the performance of these five hundred companies is an important metric of overall private-sector health.

How is the S&P 500 doing these days? Not well at all. In fact, the Club for Growth put together an absolutely eye-popping chart comparing returns on investment for the S&P 500 during the third year of the last seven presidencies:

Nixon, 1971 = 14.3%

Carter, 1979 = 18.4%

Reagan, 1983 = 22.5%

Bush I, 1991 = 30.6%

Clinton, 1995 = 37.4%

Bush II​, 2003 = 28.7%

Obama, 2011 = 1.9%

That’s particularly grim news because the third year of a presidency is usually an exceptionally good year for the S&P 500. There are many theories as to why, but the most obvious possibility is that presidents understand their re-election depends on a good economy, so they work hard to make Year 3 look good. It would be unreasonable to use third-year performance as the sole measure of economic health, but it's a troubling omen for the year ahead.

This comes on a day when DNC chairwoman Debbie Wasserman-Schultz​ actually tried claiming, on the air, that unemployment has not risen during the Obama Administration:
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To read another article by John Hayward, click here.