US Presidential Election 2016: Can President Obama’s strong stock market performance deliver Democrats victory in 2016?

Obama is in the top three presidents since 1900 in terms of stock market performance (Source: Getty)

Barack Obama may have presided over some of the most tumultuous years in recent history - but it turns out Democrats are actually good for equities. Since 1900, stock markets have performed better under the Democrat presidents than Republican presidents overall, with higher returns and lower volatility, research has found.

And Obama himself has overseen an impressive performance, according to CMC Markets chief market strategist Colin Cieszynski, who crunched the numbers.

When looking at total returns, Cieszynski found stock markets outperformed under a Democrat government by a large margin.

Monthly and annual standard deviation – a measure of risk – have also been lower under Democrat Presidents. Here's the measure of risk for each president, with a measure of risk overall for Democrats and Republicans.

Democrats overall have a lower measure of risk, with a higher rate of return. They'd argue markets have performed better under them because historically they have more often pursued expansionary policies which boost the economy. On the other hand, Republicans have favoured more austerity.

But that isn’t everything. Looking at stock market performance relative to risk, a measure of overall performance, at the level of individual presidents, Republicans have done very well: they presided over major bull markets in the 1920s, 1950s and 1980s.

The top four presidential performers were split between Democrats and Republicans, while the top 10 features six Republicans and four Democrats. So stock markets have responded positively to policies from presidents from both parties.

One of the main reasons the Democrats look more successful overall is because the worst performing presidents were Republicans who held office during one or more major bear markets - Herbert Hoover, Richard Nixon and George W. Bush.

The difference is also partly to do with timing and luck. President Obama and Republican President Ronald Reagan both took over at the bottom of recessions, in 2009 and 1982 respectively.

Read more: Moody’s Analytics have made an election model that predicts Hilary Clinton will win the 2016 Presidential election

But the analysis also shows that the Republican’s underperformance comes from “an inability to cushion the blow during bad times”, Cieszynski said.

Some of the damage may have been bad timing but much was also self-inflicted, particularly the Watergate scandal which seems to have made the 1973-74 bear market worse, and the pursuit of austerity policies in the early days of the Depression - clearly echoed in the Greek crisis of the last five years.

So will the Democrats’ stock market success be rewarded on election day?

Read more: Donald Trump is the leading Republican candidate in the polls

Although several Democrat presidents have delivered strong stock market performance, this hasn’t helped subsequent candidates. Cieszynski added:

There have been four occasions where a new Democratic candidate ran to replace a living Democratic president, and each time they lost. In contrast, under the same circumstances, Republican candidates won three out of five times and stock market performance didn’t seem to matter.

Still - whether you attribute it to the Federal Reserve or government policies, stock markets have had a strong run under President Obama. Heading into the 2016 election, though, historical evidence suggests this may not be enough to propel the Democrats to a third term.

Related articles