The Link Between Stock Market Performance And Election Results
Posted by Richard Stalker
Many studies in the past have tried to find a link or commonality as to why a President is elected. A lot of them have tried to use three main things, economic growth, inflation, and unemployment. A recent study came out that looked at elections of incumbents from the last 200 years and seems to have found a link between stock market performance and election results.
As their website states: “We analyze all U.S. presidential re-election bids and find a positive, significant relationship between the incumbent’s vote margin and the prior net percentage change in the stock market. This relationship does not extend to the incumbent’s party when the incumbent does not run for re-election. We find no significant relationships between the incumbent’s vote margin and inflation or unemployment. GDP is a significant predictor of incumbents’ popular vote margin in simple regression but is rendered insignificant when combined with the stock market in multiple regression. Egotropic and sociotropic voting hypotheses fail to account for the findings. The results are consistent with socionomic voting theory, which includes the hypotheses that (1) 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 and (2) voters unconsciously credit or blame the leader for their mood.”
If these guys have actually found a significant link between how the market performs in the first 3 years of an incumbent’s Presidential term, then we should expect more stupid things to come out of Rush Limbaugh’s mouth in the next 4 years because Obama will be reelected in a landslide. When Obama took office in 2009, the DJIA was hovering around 9,000. Now we are looking at a DJIA approaching 13,000.
See the chart below from the study that shows the conclusive data. There is only 1 or 2 aberrations in the data.