10/3/2012 7:50 PM ET|
Do stocks signal an Obama victory?
A rising market in the months before Election Day is a good sign for the incumbent party. By one read, stocks would need to drop 5% by Oct. 31 for Romney to win.
A lot of people think that Election Day results foretell how the stock market will behave in the coming months and years. A Mitt Romney victory, some believe, would be good for stocks. After all, Republicans are friendlier to Wall Street than are Democrats.
But there's no historical evidence to support this notion. Indeed, since 1928, the stock market has produced ever-so-slightly better results, on average, when Democrats occupy the White House. The median price gain for Standard & Poor's 500 Index ($INX) during Democratic presidencies has been 27.5%, compared with 27.3% during Republican administrations, according to the Leuthold Group, a Minneapolis investment research firm.
Not only that, but Barack Obama -- cast by Republicans as an enemy of free enterprise -- has presided over one of the strongest stock markets since 1928. If the S&P 500 closes above 1,443 on Inauguration Day, the market's performance during Obama's first term will rank second-best of all time, behind only the results during the first term of another supposed archfoe of business, Franklin D. Roosevelt.
No, if you want to forecast the stock market, look at price-earnings ratios, consider the troubles in Europe and China, examine analysts' earnings predictions, worry about the fiscal cliff. Look at anything except presidential polls.
But if you're a political junkie like me, you'll want to use the stock market to predict who will win the election. That is something the market excels at.
Jim Stack, the editor of the InvesTech Research investment newsletter, has crunched the numbers. His findings? Since 1900, the direction of stock prices in the two months prior to Election Day has predicted the winner 89.3% of the time. "A rising stock market indicates an improving economy, which means rising confidence and increases the chance of an incumbent's re-election," he says.
Even the market's bad calls were in years when the market didn't move much in the two months before Election Day. In the three elections during which the indicator failed, the Dow Jones Industrial Average ($INDU) moved 3.1% or less during the two-month period.
The main shortcoming of Stack's work is that you can't tell the outcome until Election Day. People like me want to know sooner.
Fortunately, Sam Stovall, the chief stock strategist at S&P, uses an indicator with a longer lead time. Looking at S&P 500 prices since 1900, he has found that the market action between July 31 and Oct. 31 has correctly forecast the outcome of the presidential campaign 82% of the time.
So how are Romney and Obama doing on Wall Street? The S&P closed at 1,379 on July 31 and was trading about 1,457 on Sept. 24. That's a gain of 5.2%. The market would have to drop at least 4.95% in four weeks for Romney to win -- assuming that this indicator is on the money this year.
Of course, the indicator was wrong 18% of the time. In 1912, Democrat Woodrow Wilson unseated Republican President William Howard Taft despite a rising market in the pivotal three-month period. The market also gained ground in 1932, even as Roosevelt, a Democrat, defeated Republican incumbent Herbert Hoover amidst the Great Depression. The market fell in 1956, but Republican Dwight Eisenhower still was re-elected. President Richard Nixon beat his Democratic rival, Hubert Humphrey, in 1968 despite a rising market, and Republican challenger Ronald Reagan ousted Democratic President Jimmy Carter in 1980, even as the market climbed.
Stovall postulates that third parties may have played havoc with his indicator. Teddy Roosevelt ran as a Bull Moose candidate in 1912, George Wallace ran as an independent in 1968, and John Anderson, another independent, took some votes from Carter in 1980. But the indicator was just plain wrong in 1932 and 1956, Stovall concedes.
In a year during which pollsters can get only about one in 10 voters to pick up the telephone to answer questions, the stock market indicator looks like a pretty good bet. I'll be watching to see how it turns out -- and, of course, with much more interest, how the market does under the winner.
More from Kiplinger's Personal Finance magazine:
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About the only thing the recent stock market rise shows is that the FED can print enough money to drive the market higher as people flee dollars for stocks and specie. Helicopter Ben is trying to inflate his way to prosperity.
"57 States" is arrogant, lazy, corrupt and an imbecile. At least Carter was honest. W looks like a Rhodes Scholar compared to this idiot.
Headlines and stories like this are strong evidence that the president, the news media, and Wall Street are all kissing each other. And we the people have to pay for it.
HELL NO! OBAMA BLEW THE DEBATE SHOWED WHAT A MORON HE IS
AND HOW HE'S NOT QUALIFIED TO BE ANYTHING CAUSE HE HAS NO EXPERIENCE
IN ANYTHING BUT BEING A BIG TALKING UNION LEFT WING LIBERAL!
ROMENY SHOWED HE'S EXPERIENCE AND KNOWLEDGE OF BUSINESS
AND THE WAY GOVT IS SUPPOSE TO WORK AND FREEDOM!
NOBAMA! ROMNEY 2012
Put down the crack pipe. Your giving Obama the credit for a rise in the market recently?
It's because the Fed has been the drug supplier with QE however many.
Obama will probably take the credit. You know, stopping the rising of the seas and solving world peace and what not.
The stock market reaction today is from the debate victory by Romney last night.
Are you kidding?? If Romney wins the stock market goes thru the roof!!!!!!!!!
Past data means almost nothing in this case. We have never had such and anti business, tax happy, spend happy President of the United States. obama and the democrats have done nothing short of putting our country on the path of bankruptcy and total collapse. Businesses understand this, unlike many kool aid drinkers that support these people. My opinion is that if Romney is elected, there will be a boost in the stock market. If the market thinks obama will be reelected or if obama is reelected, the markets will be down.
Obama has nothing to do with the stockmarket doing so well.
we mustn’t get caught up in his oratory or his populist rhetorical appeals. We must instead look at the fruits of his first four years of labor, which are decimating to the middle class.
The average 16% real rate of unemployment and underemployment, based on the Department of Labor’s U-6 report, during Obama’s first three years in office has been devastating to the middle class.With over 15 million people not working (28 million according to the Wall Street Journal based on the U-6 data), there are that many fewer middle class taxpayers and consumers (and that many more on government assistance at the poverty level relying on income redistribution from producers.)
The job situation will not improve appreciably until the cost of doing business starts dropping. Last year, the Small Business Administration reported that regulation costs American business $1.75 trillion per year and costs small businesses as much as $10,585 per employee. Just the costs of Obamacare, Financial Regulatory Reform, and new EPA regulations are projected to increase that cost per employee by more than 30%, according to Investor’s Business Daily.
The federal budget has grown from $2.5 trillion to $3.8 trillion, a 40% increase, and our yearly deficit has quintupled from $240 billion per year to $1.3 trillion per year. Our debt-to-GDP ratio, a significant barometer of the fiscal health of a nation, has spiked to over 100%, a nearly 30% increase in just three years. The middle class will pay the costs of this government expansion. Even if Obama increases the taxes on "the rich" as he desires, the most it will raise is $65 billion, hardly scratching the surface of the deficit.
High energy prices hit the middle class harder than anyone, and the Recent Bureau of Labor Statistics report on consumer prices shows that gasoline costs are up 130% since Obama’s election. While not completely controllable domestically, Obama’s assault on domestic oil production and his weak dollar policy have contributed to an equivalent 130% tax increase on transportation costs.
And that’s not the only energy cost that’s increased. As a result of the administration’s assault on the coal industry, coal-fired power production has dropped from 44.6 to 36% in just one year. Coal is a cheap source of energy, and moving away from it will dramatically increase the cost of electricity.
It's the 40 billion a month QE thats driving this stock market. Obama has absolutely nothing to do with it. Please, lets get some fiscal responsibility back in the White House and in our own house, before it's too late.
Where will Obama's job numbers be if thousands are laid of at Lockeed after the elections because of the cuts in military funding? I was never going to vote for Obama anyway but this is just disgusting how low this man will go to save his election. Don't give the required 60 day notice of layoff before the election and the government will pay any cost of litigation that arise from not giving proper notice. Really? That is not just wrong; it's asking Lockeed to break the law. Obama's election is more important than the thousands of American workers?! Before White House "guidance" Lockeed was preparing for 123,000 lay-off notices because of cuts in the military budget expected in January. Obama is disgusting! Tax increases that won't go into effect until after the election, getting Lockeed to postpone lay-off notices until after the election so he can deceive the voters and now questionable jobs numbers. What next?!
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