It's not supposed to be that way.

Republicans are pro-growth, anti-government tax slashers. Democrats are anti-business tax raisers.

"The old joke is that Wall Street hopes that Republicans keep their promises and Democrats don't," said Sam Stovall, chief investment strategist for Standard & Poor's Inc.

But since 1945, the stock market - measured by the S&P 500 index - has averaged annual increases of 10.7 percent when Democrats are in the White House, and 7.6 percent when the President is a Republican.

"There seems to be a notion on Wall Street that Republicans are better for the market. We've run the numbers. Democratic presidents have fared better," said Jeff Hirsch, president of the Hirsch Organization and editor of the Stock Trader's Almanac.

Stovall looked at the numbers different ways to see if the picture changes.

What happens when incumbents win, or when the incumbent party retains the White House?

The next year, the market rises an average 5.5 percent for Republicans, but rises 16.8 percent for Democrats.

What happens when the incumbents lose?

When a Democrat is beaten by a Republican, the market falls the next year on average 10.2 percent.

When a Republican is beaten by a Democrat, the market rises the next year on average 6.2 percent. "Poor Republicans," he said.

"So, no matter which way you slice and dice, the market does better under Democrats," Stovall said.

"If you go by the statistics alone, you want to vote Democratic."

Is there a connection between party and performance?

Economists and historians seem to be in total disagreement.

Larry Schweikart, an economic historian at the University of Dayton, said long-term studies are difficult because modern Democrats and Republicans don't look much like their ancestors.

"The problem is if you go back to the 1950s - there wasn't a lot of difference after Roosevelt between the policies of someone like Eisenhower and the policies of someone like Truman," he said. Neither was high-tax or big on government regulation, for instance.

"Doing a long term analysis like that, I don't what it would show you, but it wouldn't be right. It would like trying to compare a Democrat of the 1830s to a modern Democrat. They're 180 degrees opposite."

More recently, however, "I would argue that the stock market most definitely favors, in the last 20 years, Republicans," he said, because "the message is lower taxes, less regulation."

Tax cuts, bull markets

Burton Folsom, an economic historian at Hillsdale College in Hillsdale, Mich., agrees. He said two of the biggest bull markets of the last century both came after the two biggest tax cuts: President Coolidge's in the 1920s, and President Reagan's in 1981. "The two big tax cuts were both under Republicans," he said. "Tax cuts spur economic growth and expansion because it allows people to spend money the way they want to spend it."

But it's may not be a simple matter of who raises or cuts taxes. Last year, the U.S. Treasury Department studied 25 tax bills since 1968, estimating their effects in inflation-adjusted dollars. Of those 25 bills, 12 were cuts and 13 were increases.

Reagan signed the biggest tax cut into law, the Economic Recovery Tax Act of 1981. But he also signed the biggest tax increase, the Tax Equity and Fiscal Responsibility Act of 1982. Of nine tax bills during his eight years in office, two were cuts and seven were tax increases.

Of the 10 biggest tax cuts, you'll see the names of Republicans Reagan, Ford, the second Bush and Nixon, but you'll also see Democrats Carter and Clinton. Of the 10 biggest tax hikes, you'll see Democrats Clinton, Carter and Johnson, but you'll also see Reagan's name five times, as well as Nixon and the first President George "Read My Lips" Bush.

"When Clinton came in in '92, there were a lot of money managers that I knew who wanted to move to Australia because they said (with a) Democratic president, Democratic Senate, Democratic House, it's tax and spend, it's going to be rising inflation, a rising deficit," said Richard Hokenson, an economist and demographer in Lawrenceville, N.J. "Eight years later we had a budget surplus and lower interest rates."

Too much credit?

All this focus on presidents and parties may give them too much credit for what happens in the economy and the stock market, he said. "The most important thing is the general environment in the nation and the world," he said. For instance, the biggest factor for Carter and Reagan was the coming of age of the baby boomers - "four-plus million boomers a year reaching working age and needing a place to live and a place to shop," Hokenson said. All that spending, coupled with rising oil prices, fueled runaway inflation.

Neither Carter nor the Federal Reserve understood the situation in time, and the outcome would have been no different if they had. Paul Volcker because Fed chairman in 1979, and - during Reagan's term - jacked up interest rates to historic levels to choke off inflation. That would have happened regardless who was president, he said.

Some research supports Hokenson. A study published this summer in the Journal of Portfolio Management looked at links between market performance and the president's party, "gridlock" - whether the parties controlling the White House and Congress were the same or different - and Federal Reserve policy.

The parties lost, and the Fed won. Stocks do best when monetary policy is expansive -when interest rates are falling - and politics matter little. "Monetary policy dominated these other factors," said co-author Scott Beyer, assistant professor of finance at the University of Northern Illinois in Dekalb. "The party of the president was statistically insignificant."

"Turmoil is good. If they can't agree, then they can't spend money," S&P's Stovall said.

But Beyer said periods of gridlock had almost no effect on large-company stocks, but seemed to hurt small-company stocks. Conventional wisdom says when the parties of the president and Congress are different, there won't be any expensive, burdensome legislation passed. Maybe, but Beyer said it could also be that the kind of legislation that helps small companies doesn't get passed, either.

A bullish outlook

Whoever wins the election this year, the stock market should do well, Hokenson said, because inflation will remain low and the United States will have the strongest economy among developed nations.

"I'm not convinced that it really matters who's in there," Hirsch said. "It matters what year of the cycle we're in." The third year of any president's term is always the best for the stock market, with an average gain of 18 percent, according the Standard & Poor's. Hirsch said it appears the third year of a presidency is when policies take effect.

E-mail johnb@enquirer.com