Stock Market Predicts Obama Win
I thought this was interesting. Im not an Obama fan, but must admit the stock market has done well while he was pres.
Does the news make the markets or do markets make the news?
We in the news business cling to the conceit of the former notion, even to the point of absurdity. One reads one day that markets rallied over optimism over a rebound in the economy and profits. The next day the very same outlet asserts markets retreated over concerns growth and earnings are faltering.
No reporter would dare write the market moves randomly from day to day or for reasons that aren't readily apparent. A story that said so would be spiked by any editor and that reporter would dispatched to filling virtual glue pots. (I'm dating myself but I did start back when newsrooms had paper copy that could be impaled on metal spikes or glued together.)
Many investors try to do the same thing and put great stock in which political party will come out on top after the first Tuesday in November. That, they think, will set the tone and the course of the economy and the financial markets for the coming years.
In fact, history shows the stock market predicts the election results, not the other way around. Not to keep you in suspense, a good market is good news for President Obama and bad news for his challenger, Mitt Romney. At least that's the record of presidential elections going back more than a century with a near-90% accuracy record.
James Stack, the long-time publisher of the InvestTech Research advisory out of Whitefish, Mont., tallied the performance of the Dow Jones Industrial Average in the two months ahead of presidential elections going back to 1900. What he found is the reverse of the conventional concept of cause and effect.
"While politics do not determine the future of the stock market, there is a remarkable past link where the stock market appears able to predict who will win the White House," he writes in his current Market Analyst letter, penned before the Republican and Democratic conventions.
In the 28 presidential elections since 1900, the incumbent party won 25 times when the Dow was up in the two months ahead of Election Day. That's an 89% accuracy rate, far better than nearly any forecasting tool extant. "A rising stock market indicates an improving economy, which means rising confidence and increases the chances of an incumbent's reelection," Stack writes.
The three exceptions were in 1956, when Dwight Eisenhower was reelected despite a 2.8% drop in the Dow; in 1968, when Hubert Humphrey lost to Richard Nixon even though the Dow was up 3.1%, and in 2004, when George W. Bush was reelected despite a 2.7% dip in the DJIA.
Perhaps Ike was returned to the White House in 1956 by Americans' sympathy for his recovery from a heart attack the prior year; in any case, stocks were in the midst of a great, secular bull market. Voter reaction to the tumultuous events of 1968 no doubt helped put Nixon in the White House. And in the aftermath of the tragic events of 11 years ago today, Dubya was able to overcome a drop in the Dow.
With the major stock-market averages at multi-year highs, Obama leads Romney 49% to 44% in the latest Gallup poll, confirming Stack's findings. Similarly, at Intrade.com, where you can put your money where your mouth is in the presidential campaign, the market-based indicator places a 60% probability on Obama's reelection.
How can that be, with the dreadful jobs report for August out last Friday? Only 96,000 workers were added to payrolls -- after revisions that made 41,000 jobs disappear in the preceding two months. Nobody was fooled by the drop in the unemployment rate, to 8.1% from 8.3%, which was the result of 369,000 folks leaving the labor force. That was even more than the 250,000 shrinkage in the number of job-holders in the survey of households, which is separate from the establishment survey that serves up the payroll numbers, resulting in a lower jobless rate.
I have no idea. Jim O'Sullivan, who now hangs his hat at High Frequency Economics as chief U.S. economist, went through the polling data. He found that, if the nine, key swing states voted as the polls currently indicate, President Obama would handily win reelection by over 100 votes in the Electoral College. That would be in accord with stocks' recent rise.
That said, polls also showed Obama and Romney were within two percentage points in six of the nine showdown states, including Florida with its big, 29 electoral votes. The other swing states -- Colorado, Iowa, Michigan, Nevada, New Hampshire, North Carolina, Ohio, Virginia and Wisconsin -- all are no more than four percentage points apart. In total, they represent 126 votes out of the 538 in Electoral College. A couple of percent swing either way in those states will determine the election.
Will past be prologue? Does the stock market's recent advance augur four more years for Barack Obama?
Clearly the global equity and other risk markets have been boosted by anticipated monetary actions by the Federal Reserve as well as the European Central Bank. Their promises of the expansion of liquidity have lifted asset prices in terms of weakened paper currencies, as indicated by the concurrent rise in gold, as I noted previously.
Whether that will translate into victory for the incumbent, as indicated by the record of history, remains to be seen. To declare that it's different this time always risky. But, to paraphrase the classic song, it's still a long, long time 'til November.
I'm surprised that they only base their informaton on the two months prior to the election. It really shows me that people have a short memory. As far as Obama winning. I think as of now he does have the edge but I'm hopeful that Romney will take him.