CNBC Study: Markets Do Well Even When the President Doesn't

It's the third year of President Bush's second term, and the markets are booming. Is there a connection?

Not when you look at the numbers. According to data provided in part by Jason Trennert of Strategas Research Partners, the markets tend to post strong gains during the third year of any president's term, and it's not because of anything the president himself is doing.

Take the case of the current president, George W. Bush. His approval ratings continue to tumble, but the markets continue to rise. Nor does he get any credit for the market's gains.

But even if the president has a bad final year in office, it doesn't necessarily result in a change of party control in the White House.

In the 27 Presidential elections since the inception of the Dow Jones Industrial Average in 1896,  Republicans have been elected 15 times, while Democrats have won 12 times.

Does market performance influence elections?  If you look at the market's performance prior to and after Republican and Democratic election victories, there is no significant difference in the year prior to an election or the year after the election. Here are some examples:

-- 87% of the times Republicans were elected, the Dow was up in the 12 months prior to the election, 75% of the times up over 5%.

--75% of the times Democrats were elected, the Dow was up in the 12 months prior to the election, 67% of the times up over 5%.

--The oval office switched parties 10 times, only three times with a negative Dow in the preceding 12 months.

--In 1920, the Dow was down 28% for the 12 months going into the election when Republican Warren Harding was elected (Beginning of Prohibition) his predecessor was Democrat Woodrow Wilson.

--In 1932,  the Dow was down 43% for the 12 months going into the election when Democrat FDR was elected (the Great Depression), his predecessor was Republican Herbert Hoover.

-- In 1960,  the Dow was down 8% for the 12 months going into the election when Democrat John Kennedy was elected, his predecessor was Republican Dwight Eisenhower.

The Dow & S&P 500 have been positive for the 12 months leading up to every election since 1960, the NASDAQ since 1984 regardless of whether the executive branch was GOP or Democratic.

Here's how the major average have performed during a president's four-year term.

                                    Avg. Performance

Year 1   Dow Industrials              3.8%

            S&P 500                       3.1%

            Nasdaq Composite         4.5%

Year 2   Dow Industrials              4.7%

            S&P 500                       4.8%

            Nasdaq Composite         0.0%

Year 3   Dow Industrials              13.6%

            S&P 500                       19.3%

            Nasdaq Composite         38.1%

Year 4   Dow Industrials              5.4%

            S&P 500                       9.3%

            Nasdaq Composite         9.9%

You can watch the current crop of Republican presidential candidates debate this Thursday on MSNBC. The network hosted a debate by the Democratic candidates last week.

© 2008 CNBC.com