Stocks, Bonds, and Presidential Years
This department is designed to help readers to a better understanding of the general business conditions which affect their investments. It is obviously impossible to give advice as to specific investments.
by HERMAN GASTRELL SEELY
WHAT of the investor in this presidential year? What will be the fate of investment portfolios in the turmoil of partisan politics? Will stocks and bonds react alike to the clash of party orators and of party organizations?
He who would answer these questions is in the same predicament as the suburbanite who would forecast the yield from a dozen newly planted tomato seedlings. Indeed, if anything, the commuter has the easier task. Certain factors are under his control, and he knows that if the wily cutworm is thwarted, and the garden hose is put into service at regular intervals, there is some chance of fulfilling the promises of the seed-catalogue prospectus.
The investor, on the other hand, is consigned to the role of the helpless bystander who may be laid low by a missile from either combatant. For him there remains only hope and such guidance as the records of the past may afford.
Surface conditions varied widely in all four of the previous post-war presidential years. Two of the four were years of depression and collapsing commodity prices. The Coolidge-Davis campaign took place amid business conditions resembling somewhat those of to-day. In 1928, confidence of never-ending prosperity was high, and hectic abnormality ruled in both stocks and bonds.
Tangled though these crosscurrents may seem, they show nevertheless a certain similarity of cause and effect.
In early 1920, business surged forward under the impetus of a war-created prosperity. Consumer unrest over living costs was acute, however, and deflation could not be long deferred. The first evidence of it developed in March, and by June, when the conventions met, wholesale prices were crumbling. The trade and industrial record grew steadily worse in the two months that followed, and stocks and bonds declined in sympathy.
In the early autumn the Interstate Commerce Commission authorized an increase in freight rates. Money rates, which had been very high, showed signs of easing. At this point, the movement of stocks and bonds parted company. Bonds, under the leadership of the railroad liens, began a slow but persistent recovery.
Neither rate increases nor the virtual certainty of the election of the Republican candidate, Senator Harding, could do much for the churning stock market. Railroad shares, to be sure, rallied half-heartedly, but the day-to-day record of new price declines, omitted dividends, and rising unemployment was more than the market optimists could meet.
Observers commented that never in recent years had the presidential campaign been so negligible a stock-market influence. Not only did the expected preëlection rally fail to develop in October, but the Harding landslide was followed by a new break in the industrials. The bond market, meanwhile, held rather firm.
The 1924 campaign was preceded by two and one-half years of satisfying recovery from the commodity panic. However, there presently descended upon the budding business boom a long procession of inquisitions, fostered by eager Democrats, and approved by an unruly Congress. Teapot Dome, the Little Green House on K Street, and the merciless cross-examination of members of the Coolidge cabinet, all yielded their portion of campaign ammunition at the expense of the administration in power.
Business, at first confident of the nomination and election of President Coolidge, began to have doubts as to the outcome. Uneasiness was increased by the threat of the elder La Follette to lead a third party. Worries over possibilities were replaced by tangible evidence of a recession in automobile production, steel output, and other key indices. The bond market held steady under the influence of cheap money rates, but the stock averages staggered lower in advance of the nominating conventions.
President Coolidge was chosen to head the Republican ticket at a gathering which the Democrats termed, rather accurately, ’a coldstorage affair.’ These same Democrats hurried on to New York to denounce four years of Republicanism as ’a saturnalia of corruption’ and to bury their chances of victory in a convention so bitter that it required 103 ballots to nominate John W. Davis, a conservative, in desperate compromise.
By autumn, all worries over national politics had vanished. The trade record improved steadily and so did stock quotations. The Republican victory on November 4 was celebrated by an upturn in which hundreds of stocks reached new high records for the year. Bonds remained firm, but bettered their midsummer quotations only slightly.
In 1928, prosperity and the election of a Republican successor to President Coolidge were foregone conclusions. The worries of the stock market were centred in high money rates and the efforts of the Federal Reserve Board to curb the speculative boom, rather than in business and politics. The Hoover victory was followed by a series of six and seven million share days and soaring Stock prices, Tight money, however, left its mark on the bond averages. Over two hundred listed bonds sold at their 1928 lows as the year ended.
In 1932, as in 1920, the promise of further deflation was unmistakable as the nominating conventions met. The long decline in both stocks and bonds was halted by a brief and speculative rebound from July to September. As in 1920, the passing of dividends and the weakness in commodities finaly gave the bears the better of the argument. Fluctuations from week to week were sharp, but unmistakably to lower levels. The bond market was soft in advance of the Democratic victory, but held its ground fairly well, all things considered.
An analysis of these price movements of the past, so sharply condensed here, suggests the following conclusions: —
1. Bonds are more influenced by the rates prevailing for money than by politics during a presidential year.
2. Stocks fluctuate sharply, but as a whole take their cue from the week-to-week record of business and industry.
In years of boom and acute depression, alike, a presidential campaign has little basic influence on trade trends. Where the scales of commerce waver between recovery and a new recession, as in 1924, the struggle for political control at Washington may prove a dominant and adverse factor.
This new presidential campaign begins in an atmosphere of what might be termed hopeful but hesitant recovery. Holders of stoeks may find it an excellent precaution, therefore, to keep a very watchful eye on trade statistics.