Here Are 8 Interesting Stats About Stocks And US Presidents

franklin roosevelt

Photo: Wikimedia Commons

There are just four months until election day, and the presidential campaign rages on.Some market historians have noted that there are some distinct patterns when it comes to elections and stocks.  Specifically, many remind us that election years tend to be good ones for stocks.

Are these correlations totally spurious?

“No,” argue many experts.  Goldman Sachs’ Jose Ursua, Professor Robert Prechter, and S&P Capital IQ’s Sam Stovall are among the experts who argue that election cycles have major economic and behavioural implications for the stock markets.

We compiled everything we’ve heard about the relationship between stocks and politics. Maybe, you’ll find it to be a useful guide to the stock market.  And perhaps even the election.

The 3rd year of a Presidency is usually the best

On average, the third year of a presidency is by far the best year for stocks, with double digit returns.

That's not to say it's always the best year. 'However, as can be remembered vividly, this approach did not work at all in 2008,' warns Citi's Tobias Levkovich.

Source: Citigroup

Stock market volatility spikes in the 2nd year, then levels off

From Goldman Sachs' Jose Ursua: 'Volatility often sees a first post-election blip (as markets digest changes) and then a gradual increase towards the second year of the cycle.'

Source: Goldman Sachs

Even non-U.S. markets are better explained when considering US election-related variables

U.S. election cycles explain more than just U.S. equity returns. From Goldman Sachs' Jose Ursua: 'In particular, the election cycle in the US helps to explain a sizable fraction of non-US equity returns, both in other developed markets and in emerging markets.'

Source: Goldman Sachs

Since 1900, 5 presidents have seen stocks rise more than 50% during their term

The exclusive club includes Calvin Coolidge, FDR, Dwight Eisenhower, Bill Clinton, and Barack Obama.

Source: Bespoke Investment Group

A bull market boost the odds that the incumbent will get re-elected in a landslide

The 3-month stock market performance preceding an election is an amazing predictor of election outcomes

From S&P Capital IQ's Sam Stovall:

'An S&P 500 price rise from July 31 through October 31 traditionally has predicted the reelection of the incumbent person or party, while a price decline during this period has pointed to a replacement. Since 1948, this election-prognostication technique did an excellent job, in our view, recording an 88% accuracy rate in predicting the re-election of the party in power (it failed in 1968). What's more, it recorded an 86% accuracy rate of identifying when the party in power would be replaced (it failed in 1956).'

Source: Stovall's Sector Watch

Lately, President Obama's re-election odds have been tightly correlated with stocks

This chart is almost unbelievable.

Re-election odds are measured by Intrade.

Read more here.

Stocks have produced the best returns under Democratic presidents

The 2012 election is just one risk investors must consider this year

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