1521...zaneyville...Ohio..?
Can Bulls or Bears Pin the Tail on the Elephant or Donkey?
NEW YORK (Reuters) - The stock market's performance may not
be able to predict who will be president. But a look at
historical trends on Wall Street and in U.S. elections offers
some tantalizing possibilities.
And regardless of the outcome at the polls, election years
are good for stock prices most of the time.
Republicans have just sent off Texas Gov. George W. Bush as
their standard bearer from their national convention in
Philadelphia, where hats, pins and stuffed animals shaped like
the Grand Old Party's mascot, the elephant, were all the rage.
The Democrats soon will have their turn to do the same for
Vice President Al Gore at their convention Aug. 14-17 in Los
Angeles. (There's no word yet on whether the Democrat's mascot,
the donkey, will be given any alpha-male pointers before the fun
begins.)
The race remains close. And with three months to go before
the Nov. 7 ballot, few pundits want to predict a winner.
To get a handle on whether the market can forecast the
election, analysts at Salomon Smith Barney looked at 28
presidential election cycles beginning in 1888, when Republican
Benjamin Harrison defeated Democrat Grover Cleveland.
PARTY IN POWER
When the party in power was re-elected, stock markets
advanced 81 percent of the time (13 out of 16 elections) and
fell 19 percent of the time (three elections), a ``fairly
significant'' correlation, the Salomon analysts said.
``As a barometer of election results, an up market no doubt
would reflect satisfaction with the incumbent party,'' the
Salomon report said.
When the party in power is given the boot, the stock
market's performance was more of a toss-up.
Stocks advanced 58 percent of the time (seven elections) and
retreated 42 percent of the time (five elections).
Chances for a bull market are better in election years:
Stocks were up 71 percent of the time (20 elections) but were
down 29 percent of the time (eight elections) in an election
year.
In another measure, analysts at Morgan Stanley Dean Witter
found the fourth year of a presidential term was good for
equities.
Beginning with data from 1948, when Democrat Harry Truman
defeated Republican Thomas Dewey in an upset, stocks returned
15.2 percent on average in the fourth year of a presidency, the
second-best performance in four-year presidential terms.
FISCAL STIMULUS
Morgan Stanley attributed that finding to stimulative fiscal
policies and said it didn't matter whether Republicans or
Democrats were working the levers of power.
The best six-month period in a president's fourth year has
been from the end of May through November.
Stocks did even better in a president's third year,
averaging a 23.3 percent return, Morgan Stanley found.
Gains were more modest early in an administration, returning
on average 7.1 percent in the first year and 10.9 percent in the
second year.
Salomon Smith Barney also looked at post-election trends and
found stocks don't do so well in the final months of an election
year if the party in power changes, which occurred 12 times. The
market was down 67 percent of the time. It advanced only 33
percent of the time.
The first year after an election historically was a poor
performer, especially following the ouster of the incumbent
party, according to data going back to 1914. In that year, the
Dow Jones industrial average was significantly revised, Salomon
said.
A possible explanation may be that the new president
immediately proposed unpopular policies to correct perceived
mistakes by the previous administration, which the market found
to be a bitter pill to swallow.
Since the start of the year, the Dow Jones industrial
average (.DJI) has dropped 6.34 percent. The Nasdaq Composite
Index (.IXIC) has fallen 6.93 percent, and the Standard & Poor's
500 Index (.SPX) has slipped just 0.43 percent for the year.
On Friday, the Dow average rose 61.17 points to end at
10,767.75. For the week, the Dow gained 256.58 points, or 2.44
percent. The technology-driven Nasdaq finished up 27.48 points
on Friday at 3,787.36 -- up 124.36 points, or 3.39 percent for
the week. And the S&P 500 index added 10.37 points, or 0.71
percent, on Friday to close at 1,462.93 -- up 3 percent for the
week. |
