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Stock Market: John McCain Will Not Be President

Posted By Jim On 10/23/2008 @ 12:12 pm In Investing | 5 Comments

That’s the proclamation of the stock market in a resounding fashion.

I always find it entertaining when pundits draw ridiculous correlation relationships between the stock market and [insert something popular at the time]. This time, it’s the winner of the Presidential election in November and the performance of the stock market three months beforehand.

What’s fun is that the CNBC article, Who’s the Next President? The Stock Market Might Know [3], was written on August 26th – predating all the thick of the market turmoil. The largest single day drop of 777.68 in the Dow didn’t occur until September 29th, almost a month later. The second largest single day drop of 733.08 in the Dow didn’t occur until the 15th of October! (though we did see the single largest point gain on Oct. 13th, a gain of 936.42 in between).

So, you might be wondering how the recent changes in the market have affected the chances of our candidates?

According to the article, an up market in the three months prior to an election signaled victory for the incumbent party 80% of the time, since 1928. At the time the article was written, the S&P 500 was up about 2%. As of Monday’s close, Oct. 20th, the S&P had fallen from it’s August 1st close of 1,269.42 to 985.40. -22.4%!!! Incumbents aren’t looking too good here.

“A poor stock market performance usually anticipates and/or accompanies a weak economy—and that usually leads to the ouster of the ruling party and its president (think Herbert Hoover, Jimmy Carter and George H.W. Bush).” – Heh, talk is of a recession, a bad recession in part caused by a freezing of the credit markets in a manner not seen in quite some time.

The article goes on to discuss a few other fun frivolous statistics like this one:

Since 1833, the Dow Jones Industrial Average has posted an average gain of 6.7 percent in presidential election years, with 20 up years and 14 down ones.| Even if the Dow does turn around and close higher than its 13,264.82 opening level in 2008, history shows it will be an inferior gain to the year before-election year category, when the blue-chip index has gained an average of 10.6 percent and notched 32 up years.

I’m not going out on a limb when I say the chances of the Dow closing above 13,264.82 this year is nil, I think we’re looking at one of those times when we’re in the minority of all those statistics


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[3] Who’s the Next President? The Stock Market Might Know: http://biz.yahoo.com/cnbc/080826/26393526.html

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