Thursday, March 27, 2008

The Market and Elections

In a recent article by Liz Ann Sonders of Charles Schwab (SCHW) titled Election Economics, she notes interesting stock market patterns over the course of an election cycle. She provides the following caution though:

"Is the election becoming a bigger factor for the stock market? From the perspective of investors and Wall Street, does it matter who wins in November? I strongly believe that the economic atmosphere is more the context in which the president maneuvers and less the outcome of the president’s actions. As such, I feel there is some risk in overstating the impact of the election on stock market returns. And making investment decisions based on anticipated election results is a dicey strategy—one which we wouldn’t recommend."
Also noted in her analysis is the fact,
  • It’s rare when a sitting president is not eligible for re-election. During the past 60 years, that’s occurred only three times—after the two-term presidencies of Dwight D. Eisenhower in 1960, Ronald Reagan in 1988 and Bill Clinton in 2000. Interestingly, stock market returns were subpar during those three years, averaging a slight loss, while bonds fared much better (sound familiar?).
  • This is also the first time in over 50 years that neither a sitting president nor vice president is in the race for the nomination.
As noted in the chart below, the market does tend to struggle during the first half of an election year. The second half tends to see the market rally.

(click on chart for larger image)

stock market election cycle chart
A more detailed look at market performance is contained in the below table.

(click on table for larger image)

election cycle breakdown by party
Election Economics
Investing Insights
Charles Schwab & Co., Inc.
By: Liz Ann Sonders
March 20, 2008

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