Will President Obama Be Re-Elected?

 As each Presidential election nears, we see political pundits and commentators all over the television and the world-wide-web hypothesizing as to why a Democrat or Republican will win that particular election.  Issues to which they always point range from social issues, to economic issues, to security issues, to international issues, and so on.   In fact, they even debate whether keeping the incumbent in office will be better for the stock market or if the challenger is better for the stock market.

And, of course, each has their own perspective, and it is often based upon to which political side of the aisle they lean.  Unfortunately, such analysis is, therefore, worthless, in my humble opinion.  Yet, amazingly, the masses tune in and seem to thirst more and more for this information, especially as we draw closer and closer to the November election date.

However, one of the most oft quoted statement made by James Carville in 1992 regarding elections-  “it’s the economy, stupid” – is not paid enough mind.  In fact, Carville hit the nail on the head, but I am not sure he really completely understood the causality.

When I go back and review election results over the last 100 years, I see no evidence of an election or a change in president “causing” the markets to rally.  Rather, I do see the fact of how the market was positioned at the time of the election bearing a striking causal relationship with whether the incumbent was re-elected or not.

Before I get into the historical specifics, let’s take a step back and attempt to understand that it is quite possible that what drives people to maintain an incumbent may be the same thing that drives them to invest or expand: positive sentiment.  If overall sentiment and mood is positive and in an upswing, it does not seem as though the public would want to change course.  Rather, staying the course and continuing in a positive uptrend is the most likely outcome. 

As Elliotticians, we are able to glean from the direction and position of the stock market whether public mood and sentiment is positive, and, thus, we should be able to glean whether an incumbent is going to be re-elected or ousted.  Again, as Carville said, but a bit differently, “it is the economy, stupid.”

When we take a look at some of the historical statistics, this proposition is actually well supported. Presidents Coolidge (1924), Roosevelt (1936), Eisenhower (1956), Johnson (1964), Nixon (1972), Regan (1984) and Clinton (1996) were re-elected, and, other than Clinton, all were re-elected in landslides, as the stock market was clearly in a uptrend or peaking at the time of the election.  However, Presidents Hoover (1932) and Carter (1980) were both ousted in landslide decisions during periods of time where the stock markets were clearly in decline.  Furthermore, during the strong stock market decline of 1974, Nixon was forced to resign only two years after winning a landslide victory.

So, at this point, I would suggest to everyone that they are much better served spending time with their family and loved ones rather than listening to the pundits and prognosticators over the next 4 months until the election, as history shows that it will simply be a waste of time.  All we need to know is in what direction the stock market is headed just before the election to know if President Obama will be re-elected.  So, to slightly modify Carville’s quote:  It’s public sentiment, stupid!!!!