This table from Barclays says it all:
All of the numbers this year are closer to the average year when an incumbent is defeated than when he is re-elected. Six of the eight numbers are worse than the what is typical in the average defeat.
Barclays head of U.S. equity strategy Barry Knapp makes some interesting observations about the indicators.
First, consumer confidence is especially important because it correlates well with approval ratings:
Consumer confidence is of particular importance. Our work shows these surveys correlate well with presidential approval ratings. The University of Michigan expectations series is perhaps the most effective at determining the strength of the president’s support on the key issue of the economy. In three cases, this index fell to the 50 threshold the year before the election, and in each one the incumbent lost (1975, 1979 and 1991). After spending five months near 50 last July to November, this measure dropped from 74.3 in May (a rebound during the election year is pretty standard) to 64.5 through the summer. The President’s approval rating in Gallup has followed expectations lower; the midpoint of the May daily approval readings was 47.5, and in August it is 45, while disapproval has increased from 46 in May to 49 in August.
Second, stock prices are actually higher in years when the incumbent is defeated:
Finally, and perhaps counter-intuitively, the surprisingly strong 25.7% y/y increase in the S&P 500 also points toward an unsuccessful re-election campaign. The average annualized return just prior to the election for unsuccessful campaigns was 15.4%, while the successful average was 10.4%. In 1980, the return was 24.3% y/y. In other words, elections breed optimism, but change is even better from an equity market perspective.
Of course, Knapp points out that “to be sure, there are hardly enough historical samples to view these results as anything more than observational.”
The comparison is interesting nonetheless.
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