Presidents and stocks: History suggests '09 could be a doozy

NEW YORK -- The nation's new president has been compared to FDR. His economic views go by the catchy code word Obamanomics. The transition of power at the White House is always a big deal on Wall Street — but never more so than this year with the stock market, banking system and economy in the throes of the worst crisis since the 1930s.

Enter President Obama, a politician with JFK-like charisma and high approval ratings. Wall Street and Main Street are counting on him to be Mr. Fix-it.

Not only has Obama inherited a financial mess of historic proportions, he is also facing what market historians at the Stock Trader's Almanac refer to as the "post-election-year syndrome": The first year of a presidential term has historically been the worst for stocks.

"In the four-year presidential cycle, the first year is usually the toughest," says Jeffrey Kleintop, strategist at LPL Financial.

In post-election years since 1871, the Standard & Poor's 500-stock index finished higher only 56% of the time, says Ned Davis Research. That's well below the 74% of gains in pre-election years, 69% in election years and 59% in midterm election years.

On average, stocks have risen just 2.6% in the first year of a presidential term, nearly 8 percentage points less than the 10.4% returns enjoyed in the third year of the term, which historically has been the best. That underperformance tends to occur because the incumbent president and party in power tends to prime the pump in the final two years to get the economy running on all cylinders in hopes of getting re-elected.

Hurdles confronting Obama

This year is different in that Obama must take bold steps to boost an economy in free fall. Stocks are off to a dismal start, creating ever more pressure on the president to turn things around.

Wall Street is starting to question if the $787 billion stimulus bill Obama is expected to sign into law Tuesday is enough to revive the floundering economy and job market. Investors have also expressed reservations about the bank rescue plan announced last Tuesday by Treasury Secretary Tim Geithner, mainly because it lacked details.