When former President Barack Obama took office on Jan. 20, 2009, the Dow Jones Industrial Average (DJIA) continued its credit crisis slump and fell to 7,949.09, the lowest inaugural performance (as measured by percentage drop) for the Dow since its creation in 1896. The S&P 500 and the Nasdaq took similar hits on inauguration day, dropping 5.3% and 5.8%, respectively. Fourth-quarter earnings reports were on track to drop more than 20% compared to the same quarter the previous year.
Bank stocks had been hit prior to Obama taking office, and the selling continued the day he was sworn in, with the banking sector in general declining by 30%. Bank of America Corporation (BAC) dropped 29%, and Citigroup Inc. (C) sank 20%.
While the economic backslide may have seemed to indicate that the American public was less than confident in their newly elected president, the dip was, instead, widely credited to a continued lack of confidence in the failing economy left behind by the previous administration. The market found a bottom in March 2009 and entered one of the longest bull markets in history.
Obama was inaugurated for the second time on Sunday, Jan. 20, 2013, which was a Sunday so the market was closed. It was also closed on Monday, Jan 21, for Martin Luther King Jr. Day. However, on Tuesday, Jan. 22, the DJIA opened at 13,649.70 and rose 0.46% by the end of the session. If correlation always meant causation, traders might conclude that market participants were more confident in Obama the second time around.
A Presidential Comparison
Investors should be very careful about drawing conclusions from election or inauguration day performance because there isn't enough data. For example, except for Franklin Roosevelt, the maximum number of inauguration days for any president is two, which is too small for statistical analysis. Each inauguration is also accompanied by unique economic circumstances that make drawing conclusions even more difficult. It seems more likely that incoming presidents deserve neither credit nor blame for what happens the day they are sworn in.
While former President Obama's first inauguration was a bad day for the market, the first year of a presidential administration or even the first term might be a better measuring stick for economic performance. From that perspective, former President Trump's first-year performance was the best since Carter, while former President Clinton's first term experienced the best DJIA performance.
Under former President George W. Bush, the stock market was down over 8% his first year in office and lost 3.7% by the end of his first term. However, the dotcom bust that helped inflict that damage had little to do with the president's economic agenda. What can be said for sure is that the historic lows during George W. Bush's administration and the shaky beginnings of Obama's first few months in office were correlated with widespread economic crises and an economy in flux.
Despite its inauspicious economic beginnings, the Obama administration was correlated with an impressive upswing in the stock market. By the end of Obama's second term on Jan. 20, 2017, the DJIA had more than recovered from its January 2009 low point.