NEW YORK – Even with the flawed roll out of health-care reform and uproar over spying, Barack Obama is enjoying one of the best stock markets for a re-elected president. Signs are building that it might not last.
This year’s 24 percent jump in the Standard & Poor’s 500 Index is the third-biggest annual rally after a president was returned to office since the 1930s, trailing Bill Clinton and Ronald Reagan, according to data compiled by Bloomberg. The index has climbed 108 percent since Obama became president, adding more than $10 trillion in equity market value.
Record Federal Reserve stimulus, interest rates around zero percent and a doubling of corporate profits since they fell to a five-year low in 2008 helped sustain stock increases under Obama. The rally that began just after he took office now exceeds the average length of bull markets by almost a year and valuations are up 18 percent in 2013. Add to that prospects for the Fed to curtail stimulus, threatening higher borrowing costs, and the outlook for further gains under Obama is grimmer.
“The president came in at a highly unusual time with markets in complete disarray,” Chad Morganlander, a Florham Park, N.J.-based portfolio manager at Stifel Nicolaus & Co., which oversees about $130 billion, said by phone Nov. 6. “After the rally this year, we’re fairly valued at best. The next stage of this will have to be an improving economic outlook and earnings outlook well above where we stand.”
While history shows re-elected Republicans have had better stock-market performance, with an average 5 percent gain in the first year of their second terms compared with a 1.2 percent loss for Democrats, 2013 is on track for the best return in a decade. This year’s rally in the S&P 500 is the broadest ever, with shares of Assurant Inc., Delta Air Lines Inc. and 442 more companies rising, data since 1990 compiled by Bloomberg show.
The Obama administration is fighting a global backlash over revelations that the National Security Agency spied on foreign leaders, hacked into fiber-optic cables to get data from Google Inc. and Yahoo! Inc. and intercepted communications of Americans without warrants. The president also has been defending his Affordable Care Act this month after website glitches delayed thousands of people from signing up for the health-insurance exchanges.
The S&P 500 rose 0.5 percent to 1,770.61 last week after gross domestic product and jobs reports beat projections and Twitter Inc. almost doubled in its trading debut. The index climbed 0.1 percent to 1,772.28 at 10:13 a.m. New York time.
The benchmark U.S. equity gauge capped its fifth straight weekly advance and hasn’t fallen more than 10 percent since October 2011, the longest stretch without such a drop since 2007, according to S&P.
“It’s unusual that we’ve gone so long without at least a correction,” Mark Luschini, chief investment strategist at Janney Montgomery Scott LLC, said from Philadelphia in a Nov. 6 phone interview. His firm oversees $58 billion. “If you just look at this from a valuation perspective, the market is rich. That doesn’t mean we have to crash, but it does suggest that going forward, your return assumptions for U.S. equities should be much more muted than they have been.”