Do stocks signal an Obama victory? (MSN Hoping and Praying it will be so)

MSN Money ^ | 10/03/2012 | y Steven Goldberg, Kiplinger's Personal Finance magazine

[SeekAndFind]

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 0.00%) 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 arch foe 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.

[SeekAndFind]

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.

[Perdogg]

No, it signals that the Fed is creating a ‘stock bubble’ due to QE infinity.

[MrDem]

True. Last night at about 9:30 EST, when it was apparent that Romney was wiping the floor with Bozo, the S&P futures started shooting up 7 points. That is how the market is voting.

[Proud_texan]

Indeed. If there's one true axiom of investing it's "don't fight the Fed" and when the Fed is giving away free money very few are going to refuse it even if they know it's a bubble.

If Romney is serious about replacing Bernanke his victory would cause the market to drop IMO and probably for some time.

[mtrott]

Well, I disagree with the premise that a rising stock market indicates a significantly improving economy. You can’t go by the past because Ocarter has Bernanke artificially pumping the market with all the QEs.

Actually, I fear that, if Romney wins, the market will realize that QE party is over and how weak the real economy is, and they will also realize that it will take a while to convince entrepreneurs and job creators that they are not going to be targets and that it is safe to start new businesses and/or expand existing businesses.

[MrB]

Indeed, that’s the whole point of QE4-ever.

Increased stock valuation is simply representing the ratio of the value of the dollar to the value of the stock.

When the dollar gets devalued, stocks will appear to go “up”.

[E. Pluribus Unum]

It means Obama has commanded the Plunge Protection Team to do whatever it takes to get him reelected.

[silverleaf]

we've never had a redistributionist racist Marxist America-hating business hostile incumbent with a track record of 43 months of 8+% unemployment and a $5 TRILLION add-on to the deficit

nor have we ever had bottomless QE=infinity

so I hardly think traditional models can be predictive this time

If anyone on Wall Street wants this incompetent dude re-
elected it's just so they haven't wasted their protection money donated to democrats

[TheWriterTX]

Exactly!

[Sicon]

No, it signals that the Fed is creating a ‘stock bubble’ due to QE infinity.

This absolutely bears repeating...

[pallis]

This stock market bears no resemblance to reality on the street. Gas at four dollars a gallon, and groceries at twice the price people were paying when Obama took office tend to chill those warm, fuzzy feelings the rising stock market once engendered. When almost no one has had a raise in the past four years, the little realities of the economy people experience daily mean something.

[CharlesWayneCT]

The market is way more complex than can be expressed by these types of analysis.

For example. Obama has a good stock market, in part because the market was so bad when he took office. We have barely recovered to where it was before the meltdown.

Second, the market is a predictor. If people think a republican will be good for the market, the market will rise, either before the election, or right after the election (I remember when Bush was announced as the winner at 3am, the futures shot up, and when Gore withdrew his concession, they dropped). So maybe the republicans do worse during their time in office in part because the market goes up at the end of the democrat’s term in anticipation, and drops at the end of the republican’s term as they realize a democrat will be in office.