WHO WILL BE THE NEXT PRESIDENT? JUST ASK THE STOCK MARKET….

By Elliott Wave International

What’s the biggest influence on the outcome of presidential elections?

Many observers would identify the role of campaign spending by super PACs, a candidate’s debate performance, and, of course, the health of the economy (“stupid”).

Yet if you want an answer backed by a large body of evidence, you’ll find one in the recently-published, landmark research paper by Robert Prechter, Deepak Goel, Wayne Parker and Matthew Lampert, titled “Social Mood, Stock Market Performance and US Presidential Elections.”

A lot of time, data analysis, and copious statistical evidence led them to this straightforward result: “Social mood as reflected by the stock market is a more powerful regulator of re-election outcomes than economic variables such as GDP, inflation and unemployment…”

In other words: If you want a good predictor for the result of an incumbent president’s re-election, look to the stock market.

Large amounts of earlier research have focused on stock performance after a presidential election. But very few scholars have reversed that order, to investigate a possible link between elections and preceding stock market performance. So reverse that order is what the authors did. What’s more, they’re the only ones to study the issue from a socionomic perspective — the premise that waves of social mood simultaneously drive the valuations of stocks and sitting presidents.

The group published their research on January 17, and it’s already getting attention. A Washington Post columnist read the paper and got its practical usefulness, by noting that Obama should benefit from a stock market that’s been mostly higher since 2008, while a Republican challenger “should hope the Dow crashes.”

You can read the entire research paper yourself by following this link >>

Comments

  1. I hae read the book “”Conquer the Crash”" and then my guess is that Obama won’t get a second term.

  2. The market likes QE and BB feels Congress is not doing near enough to stimulate the economy.

    And if the Republicans gain the White House deficit spending will be cut sharply.

    So my friends, BB via QE will reelect BO.

    • While QE may or may not do all that much for the real economy, it sure does put a bid under stock prices. Obama has a majority of his appointees on the Fed board, and that is a very good reason to expect QE3 and QE4.

    • There is a major flaw in Nate Silver’s analysis w/ respect to the stock market. He used September as the cut off for all economic variables. He did this because he assumed that voters wouldn’t feel most economic variables (probably true with data like GDP, U3, or ISM) closer than 2 months from the election. But everyone knows the level of the market on at least a daily basis. We know from recent experience that McCain was actually ahead of Obama until Lehman failed in mid September and the bottom fell out of the stock market. The public mood will change very rapidly when the market moves. The SSRN paper is a much better analysis, and it shows a real correlation only with incumbent Presidents, but not with incumbent parties when the President isn’t running for reelection (2008 may be the odd year that had a real correlation of this type, perhaps because the moves in 2008 were so extreme.).