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What Is Bad for the United States Is Good for Stocks


An historical examination of presidents, debt, and stock returns.

We will take the surplus/GDP of the United States the moment a president left office and subtract from it the surplus/GDP the moment a president entered office. The table below states how much each president added to the surplus/GDP and how stocks performed during his tenure. The numbers for both are annualized.

Some interesting tidbits are as follows:

The only president to preside over a time when there was no debt was Andrew Jackson.

The last president to actually leave with less debt than when he came into office (irrespective of GDP) was Coolidge.

Therefore, all the presidents since Coolidge (and some others before him) that achieved positive annualized surplus/GDP numbers did so by growing the GDP more than the debt.

The last fiscal surplus year was 1957. The so-called "balanced budget" years of 1998-2001 were more due to innovative accounting methods than real fiscal discipline.

The current debt/GDP is 101%.

So what does this mean for stocks? The formula for estimating stock market returns by use of the change in surplus variable is -0.097x + 5.83%. The letter x represents the percentage change in surplus/GDP in one year. This formula suggests that for every 1% decrease in surplus/GDP, stocks go up 0.097%. Therefore, what is bad for the long run future of the United States actually has a mildly positive effect on intermediate term stock performance.
No positions in stocks mentioned.

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