crease spending or put pressure on the Fed to stimulate the economy for
the upcoming election, would be the best year for stocks. But the fourth
year, although good, is clearly not the best. Perhaps the market antici-
pates favorable economic policies in the election year, causing stock
prices to rise the year before.
The superior performance under the Democrats in recent years is
documented in Table 13-3. This table records the total real and nominal
returns in the stock market, as well as the rate of inflation, under Demo-
cratic and Republican administrations. Since 1888, the market has fared
better in nominal terms under Democrats than under Republicans, but
since inflation has been lower when the Republicans have held office,
real stock returns have been slightly higher under Republicans than
228 PART 3 How the Economic Environment Impacts Stocks
FIGURE 13–2
The Dow Jones Industrial Average and Presidential Terms (Vertical Lines Represent a Change of
Administration, Dark Lines Represent a Change of Party, and Shaded Areas Represent a Democratic
President in Office)