news.goldseek.com / By Adam Hamilton / July 6, 2012
After the US Supreme Court inexplicably redefined Obamacare to uphold its constitutionality, politics are very much back in the news. And with the all-important US elections only 4 months away, it’s only going to get worse. Interestingly, the state of the US stock markets heading into voting is likely to both predict and heavily influence the outcome. The markets’ impact on Americans’ collective psyche is vast.
For most investors and speculators, this is pretty obvious. When the stock markets are up we feel more optimistic about everything, so we tend to spend more. Economists call this the wealth effect. And when the markets are down we feel more anxious and worried, so we pull in our horns. Not surprisingly, these behavioral changes spawned by our rising and falling portfolios also carry over into the voting booths.
When the stock markets are strong so everyone feels better about the future, incumbents are more likely to win. Americans perceive them as being somehow responsible for the prosperity they are experiencing and expect to continue. But when markets are weak everyone feels worse and wants things to improve. So the incumbents tend to get booted out in favor of the challengers. The stock markets are the key.
Provocatively much hard data supports this thesis, it is somewhat well-known among students of the markets. Back in February the same day I published myoriginal essay in this series, another fascinating thread from a different perspective also made news. InvesTech Research did a study showing that stock-market performance has been the most reliable indicator of who will win the presidency for over a century.
The methodology was simple. InvesTech looked at the stock markets’ performance in the 2 months leading up to every US presidential election since 1900. Since these elections are held on the Tuesday after the first Monday in November, always early that month, this essentially means how the markets did in September and October. This minor piece of data has correctly forecast nearly 9 out of 10 elections!