Monday, August 15, 2016

The Election Year Indicator

I've never been a fan of stock market indicators such as the Super Bowl Indicator, Cardboard Box Indicator, and the Sports Illustrated Swimsuit Cover Indicator. Although with the last I bet more women check out that issue to determine which new swimsuit to buy. Interestingly enough the Election Year Indicator has done a pretty decent job in predicting election outcomes.

"Presidential election years can be more volatile than one might expect," 

I'd say that's an understatement if there ever was. While this year has been wilder than most it's not alone.

Similarly, the election years of 1984, 1988, 1996, 2004 and 2012 all had market corrections of 7 percent or more and yet finished the year positive...

...When the stock market moves higher, the incumbent party usually wins. That has been the case in 12 of the 14 elections since 1928.

Conversely, in the eight elections since 1928 when the S&P moved lower, the incumbent party lost seven times. The stock market has correctly predicted the winning party 19 out of 22 elections, Stack said.

I don't think this is any real secret to those who follow the markets and politics.  When people are making money and have jobs they are likely willing to stick with the status quo. When the economy is bad, or at least if people feel bad, then politicians need to watch out.  I think the famous quote is "It's the economy stupid"

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