Interesting - FWIW
FRIDAY a.m.
March 5, 2004
Political Theory
By David Nichols
This morning I'm going to offer my one and only take on the Presidential election, as perhaps the markets hold the most important clue on who will win in November.
This year's election offers some uncanny parallels to 1992 -- principally a Bush in the White House, and a recent military victory in Iraq. Also similar has been the way in which both the elder Bush and his son have seen soaring approval ratings steadily wither away due to economic uncertainty and soaring budget deficits.
Famously, Bill Clinton won the election in 1992 by keeping his campaign focused on the mantra "it's the economy, stupid". The lessons learned back then are not lost on the current crop of politicians and advisors. People vote primarily with their wallets, despite whatever else they may say or feel. And the best possible poll about how people feel about the economy and the future is the stock market.
Back in the run-up to the 1992 election, the market went on a rip-roaring upside bender in December 1991 -- similar to the upside move we just saw this past December. It's interesting to note that the market put in a multi-month high at the end of that move, during the first few days of January 1992 -- and the S&P 500 didn't make any real upside or downside progress from there. That is, not until after the election .
Here's how the chart of the SPX looked back in 1992:
You can see for yourself the trajectory of the market during the 1992 campaign year. The first quarter saw a relentless but gradual correction, followed by a sharp rally back up and then some jagged motion eventually making it back up to the highs. A few false breakouts in the summer led to another swift decline as the election neared. And then heading into the election, the SPX -- perhaps sensing it was going to get what it wanted -- rocketed up and never looked back after election day.
The lesson here is all of 1992 was a tense, back-and-forth trading range underneath the pertinent resistance levels at that time. It's my feeling that Bush Sr. would have had a much better chance at re-election if the markets had broken out above that range at some point during the campaign season.
Certainly the parallel with the current campaign is there. The SPX has been grinding underneath big resistance at SPX 1150-1160 for weeks, heading on months -- and I think it's the battle here at this resistance zone that will tell us who will likely win the White House. If the SPX gets up and through 1160 and takes off like a rocket, you can all but count out John Kerry's chances. People will be feeling good, and voting for the status quo.
But if the market keeps up its lethargy, or even pulls back more severely from 1150 resistance, then John Kerry's prospects grow brighter and brighter.
That's just my opinion, obviously, and you're free to disagree, but I think the pitched battle here at SPX 1150-1160 will have huge ramifications for the November election. And if the analog from 1992 holds up, we may not actually get up and through this level -- at least not with a breakout that sticks. We may get a few false pops up and over, like we saw back in 1992.
I also bring this up because today is the day we get the employment report for February. This is a famously "massaged" number, with all sorts of seasonal and other assumptions built into the headline print. It's also interesting to point out that the Producer Price Index for January 2004, which was supposed to be released on February 19th, still has not seen the light of day. This statistic is also compiled by the Bureau of Labor Statistics, the same division responsible for the employment report.
The point here is that those in the government know that these numbers can have a huge impact on the stock market, and those in power -- regardless of political party -- would like to see these numbers as sparkling as possible. How much massaging goes into the actual numbers is hard for us to know, but the temptation to "prettify" may be too great to pass up.
Going forward, we should keep an eye on the market as the ultimate sentiment poll for the Presidential election, and it will certainly be an interesting exercise to see how opinion polls change as the market changes. |
