Your Brokerage Statement Tells You if Obama Will Get Re-Elected

Do Presidents cause the stock market to go up or down, OR do stock markets cause Presidents to win or lose elections?  Actually, I suppose both things are true, but this blog will focus on the latter.  There is no better leading indicator for what party/candidate will win an election than the performance of the Dow Jones Industrial Average and S&P 500 in the years prior to the election.  And I have the data to prove it.  The only condition for your continued reading is that you understand the descriptive nature of what I am saying here, and not interpret it as prescriptive.  This is purely a case of me describing the way things are - not stating how they ought to be.We all know that in 2008 Obama thumped the incumbent party and its candidate, John McCain, and we should also know that the market that year suffered its worst loss since the 1930’s (declining almost 40%).   Awful market, the opposing party wins big.  Now, let’s go back a bit further.In 2004 John Kerry ran on the thesis that Bush had messed up the economy and Kerry could fix it.  And indeed, the market struggled mightily in 2001 and 2002 (Enron, 9/11, dotcom hangover, etc.).  But what killed John Kerry?  The S&P 500 was up 29% in 2003 and 11% in 2004.  Good luck making that argument in that environment.  Good market, the incumbent wins.In 2000 we all know that Bush barely beat Al Gore.  And of course, the stock market had rallied dramatically throughout most of the 1990’s, especially the second half of the decade (when Gore was VP).  However, 2000 represented the famous crash of the market, with the S&P 500 down 9%, but more importantly, the Nasdaq down 50%.  A new party takes the White House (bad timing for Al Gore).In 1996 Bill Clinton handily defeated Bob Dole.  In 1996 the market was up 23%.  In 1995 it was up 38% (almost the best year in the history of the market).  There was no reason to even have this election.In 1992, Clinton beat incumbent George Bush Sr.  The Dow was up 4% that year.  So this year would seem to dispute my thesis, except for the fact that 4% was less than half that of the long term average annual return of the market (which was closer to 11%), and the S&P was down over 3% in 1990, its first negative year since 1981. In 1988 Bush Sr. handily beat Michael Dukakis.  The Dow and S&P 500 had both enjoyed four consecutive years of robust returns.  Good luck beating an incumbent who is up 16%, 5%, 19%, and 32% in hbis four years in office.1984 was the biggest landslide in American political history, with Ronald Reagan defeating Walter Mondale in 49 of 50 states.  Oh, and the market was up 50% in the three years prior to the election – marking the beginning of the biggest bull market in history.  Good times for the incumbent.In 1980, Jimmy Carter (the incumbent Democrat) was slaughtered by the aforementioned Ronald Reagan.  The average return of the Dow under Jimmy Carter?  -1% per year!  (-17, -3, +4, +14).  The actual compounded return was even worse.  A four year period of negative returns.And in 1976, we see what seems to be the first example of my theory being disproven.  Indeed, 1975 and 1976 were big relief rally years in the stock market.  BUT, the first year of Ford’s Presidency was down 27% in the S&P 500, and the Dow was down 28%, the worst year since 1937.  So the flood of various unpopular headwinds Ford had to deal with were accompanied by a disastrous first year in the Presidency (one shared with his disgraced predecessor).  Additionally, Ford was Vice-President the year before (1973) in which the market was down 17%.  So the 1973-1974 bear market represented a sell-off of over 50%, and Ford was there for all of it.  After the 75-76 rally investors had not made back their losses from 73-74 (and by the way, the economy was downright rotten, even with the 75-76 rally).,Speaking of Ford’s predecessor, Nixon handily defeated McGovern in 1972 after three consecutive years of positive stock market returns.In 1968 the incumbent party lost (the Republican Nixon took over after the Lyndon Johnson/democrat era).  Average stock market return in the Dow from 1966-1968?  ZERO.  And when compounded, it was negative! In 1964 Lyndon Johnson handily defeated Barry Goldwater, fresh off the national tragedy of JFK’s assassination.  In 1963 the market was up 17%.  In 1964 it was up nearly 15%.  Done deal.In 1960 John Kennedy defeated Richard Nixon in the most contested election since 1948.  The stock market in 1960 before the incumbent party’s loss?  Down 10%.In 1956, the very popular Dwight Eisenhower won re-election.  In 1954 the Dow went up 44%.  In 1955, the market was up 21%.  I would have advised his opponent to drop out.In 1952 Eisenhower defeated Adlai Stevenson, who was running because the Democrat incumbent Harry Truman decided not to run (unpopular incumbent Democrats have a history of not running for a second term so that they can send another member of their party faithful to be the sacrificial lamb).  And the market had been up for the four years prior to this election.  The post-World War II bounce was in full effect, but Truman was extremely unpopular, Stevenson an inept candidate, and the Korean War had an exhausted American public in utter frustration.  But we here come to the conclusion of my research.  You have to go back to 1952 and the Korean War (nearly 60 years) to find the exception to the rule of my thesis.Stock market performance has been a leading indicator in predicting Presidential election results.  One can certainly decide it is all a coincidence.  And one can reasonably assert that correlation is not causation.  But when one wants to gauge the popularity of a President’s big-picture economic and foreign policy platform, I wonder if it is all there for us to see – in the form of the U.S. stock market indices?  The numbers seem to speak for themselves.My prediction?  If 2011 and 2012 are ROBUST years for the U.S. stock market, Barack Obama is re-elected.  If they are negative years, or even tepid, unimpressive (but slightly positive) years, he will be defeated.  History says I am right.(Incidentally, there is SOME correlation as well in mid-term election years, but it is not as conclusive and overwhelming, so I will spare you the boredom of my research).