Presidential election fever is heating up. Later this morning, Mitt Romney will announce his pick for Vice President.However, his pick might not be as important as the direction of the stock market.
According to Sam Stovall, stock market historian and Chief Investment Strategist of S&P Capital IQ, stocks have an incredible track record of picking the president ahead of the election.
Earlier this year, he wrote about it in his Standard & Poor’s Stovall’s Sector Watch:
“The S&P 500’s price performance during the three calendar months leading up to the presidential election has been a good predictor of whether the president or his party would be re-elected or replaced. 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). Therefore, pay attention to the market’s performance in the three months leading up to the presidential election, as it will probably do a better job than the plethora of political pundits prognosticating on the presidency.”
We’re only 10 days into this indicator. But so far, it’s pointing to the incumbent. Here’s a chart of the S&P 500 since July 31.
Photo: Google Finance