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Posted by on Oct 11, 2008 in Economy, Politics | 2 comments

Quote Of The Day: The Historical October Stockmarket Presidential Election Indicator

The political Quote of the Day comes from SFO magazine which notes that the behavior of the stock market has predicted presidential election outcomes throughout history. Here’s part of the article:

There is a litmus test that has predicted the winner and loser of every presidential election over the past 100 years. If the Dow has risen 3.3 percent or more in October, the incumbent party has never lost. If the Dow has dropped 0.5 percent or more, the incumbent party has never won. End of story.

If the Dow is up even fractionally, the incumbent party has only lost four of 17 elections: 1920, 1960, 1968 and 2000. Three of the four instances (1920, 1960 and 2000) involved a situation when the incumbent party lost power after two successful terms by a popular president, and the fourth (1968)… was one of the most chaotic political years in human history.

And further down in the extensive piece which is filled with details:

The Dow generally will foretell the fate of the incumbent within the first week or so of October. Historically, if the incumbent is destined to win, the Dow has been up nearly one percent at the beginning of October compared to an average decline of over two percent in an incumbent’s losing scenario. The picture is even clearer as the month progresses. While the Dow tends to rise more than two percent if the incumbent is going to win, the Dow tends to stay down, foreshadowing an incumbent defeat.

From the middle of the month on, the Dow will push higher and higher in anticipation of an incumbent victory, with strength during the last week of the month. Historically, the reverse is true for the losing scenario in October with the Dow pushing lower and lower the second half of the month – generally bottoming out just before the last week. Then there tends to be a fairly strong rally at the end of the month whether the incumbent is going to win or lose, as by now the market senses the likely outcome.

Read it in full.

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