Stock market's direction could determine the U.S. Presidency
“When the stock markets are strong so everyone feels better about the future, incumbents are more likely to win.”
After the first few months of President Barack Obama's term in office, I wrote about the carnival rollercoaster the market was riding. Looking at the blue line below, that post may have foreshadowed his tenure! The average of four-year presidential cycles from 1953 through 2008 shows that the S&P 500 Index generally remains flat for almost the first two years, before heading higher in the second half.
Despite the S&P's wild ride, the market is significantly higher than when Obama took the oath. Does this ensure a victory for the 2012 election?
To paraphrase common fund disclosure, past performance is not indicative of future presidential performance. Rather, victory for the president depends on what the market does in the next few critical months.
If the S&P remains strong, then the answer might be yes, says Adam Hamilton from Zeal Intelligence. He points to research done by InvesTech, which looked at market results during the two months leading up to the presidential election since 1900. If stocks rise in September and October, the incumbent party usually wins the presidency; if equities drop, the incumbent typically loses. “Out of the last 28 presidential elections, this simple indicator has proven correct 25 times. This is an astounding 89 percent success rate!”
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