Saturday, September 6, 2008

The stock market hates Presidential elections, but loves their outcomes

The financial markets hate uncertainty, especially uncertainty surrounding a Presidential race. Listed below are four charts that illustrate the fluctuations of the S&P 500 spanning 1960-Present, with focus on key Presidential elections.
1960: Markets tumbled right before John K. Kennedy was elected President in 1960 and rebounded thereafter.
1963: Markets hated the uncertainty surrounding the assassination of President Kennedy; the S&P 500 tumbled.
1968: Even though Nixon became one of the most infamous Presidents in history, markets rebounded once the outcome of the election was known.

1974: Markets rallied when Nixon resigned; who wouldn’t?
1976: Carter ousted the incumbent Ford, and markets rebounded.
1980: The markets loved Reagan over Ford; the S&P 500 tumbled going into the election, and rallied on the outcome.

1988: H.W. Bush (George senior) beat Dukakis; markets disliked the outcome and the S&P 500 fell 2% over the election month. I really have nothing to say about that, but it is kind of interesting.
1992: The S&P fell right before the election, and rebounded on the Clinton outcome.

2000: Markets actually fell on the second Bush win (George junior), but it is difficult to tell since the country was coming out of a recession and the markets were highly volatile.

I hope that you had as much fun looking at these charts as I did making them. Clearly, the evidence is not statistically sound, but it does look like markets fall right before an election. The Republicans and Democrats have different ideals regarding taxes, immigration, climate change, trade negotiations, and almost everything under the sun. A tight race creates uncertainty over the outcome, and likewise, over government policies that affect the economy, the stock market, international relations, etc., going forward.

During this election year, look for a sharp drop in the S&P 500 in October and a rebound in November, when the outcome of the election is determined…Go McCain!

Please leave comments. Best, Rebecca Wilder

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