Election-Year Market Looks Like a Downer for Bush: Chet Currier
July 30 (Bloomberg) -- The stock market has given President George W. Bush little encouragement lately in his re-election campaign.
With about three months left before Election Day, the major U.S. stock indexes show declines for the year to date. That's not a good sign for the incumbent party.
Interpretations of the market's behavior are always open to argument, especially on matters as subjective as politics. One way to read the charts and tables is that investors have shown no wild enthusiasm for either Bush or the Democratic nominee, John Kerry.
It's Bush, as the incumbent, who's being measured by a political-forecasting indicator I first wrote about in January, based on research by economist Anthony Chan. To avoid treating it too solemnly -- any stock market indicator should be viewed with a dash of skepticism -- I dubbed it the Market Index Soothsayer System, or MISS.
MISS says that, since the rise of mass investing in the U.S. via mutual funds, election-year trends in stock prices are likely to foreshadow the results of the November election.
In the first nine months of 1988 and 1996, the Standard & Poor's 500 Index rose more than 10 percent. Both times the party in power won -- the Republicans in 1988, with George H. W. Bush succeeding Ronald Reagan, and the Democrats in 1996, with Bill Clinton gaining a second term.
Ousters
In the first nine months of 1992, the S&P 500 rose only 2.5 percent, and the incumbent Republicans lost. In the first nine months of 2000, the index dropped 1.4 percent, and the incumbent Democrats lost.
The same relationships didn't show up in election years before that. What's different now is widespread direct participation in the stock market by mutual-fund investors, notably in vehicles such as 401(k) retirement savings plans. Twenty years ago, about one in eight U.S. household owned fund shares, according to the Investment Company Institute. Today, almost half do.
Statistically flimsy as a study sample of only four cases may be, it enables me to posit that a pattern is developing. Without a reasonably strong showing from stocks, the ``ins'' might be in trouble.
Time Left
Under the rules I set up, MISS won't render its final verdict until Sept. 30, which is two months away. Still, it will take a big change of mood in the markets in that relatively short span to produce the kind of solid gain that a bidder for re- election wants to see.
On a cheerier note for stock-market bulls, most money managers I have spoken with say the election doesn't loom as a big factor in their outlooks, whichever way it goes.
``If Kerry is elected, as long as the Republicans continue to control Congress, we'll have gridlock in Washington,'' said Jack Cunningham, who manages value-style stock funds at Citigroup Asset Management. ``Gridlock is not such a bad thing.''
The gridlock-is-good mantra, first heard on Wall Street in the 1980s, gained some extra credence in the years after 1994, when the Democratic president, Clinton, faced a Republican- controlled Congress. From the end of '94 through the end of '99, the S&P 500 averaged a spectacular 28.2 percent annual return.
Staying Cool
At various times, Democrats and Republicans have sought to claim credit for that heady showing. A third possibility is that both sides are exaggerating, since politics is easy to overplay as a market force.
``What does all this mean? For investors with all but the shortest of time horizons, not much,'' say analysts at fund manager Janus Capital Group in Denver in a recent report to investors. ``Nothing as one-dimensional as who wins in November will entirely determine how markets or individual stocks will perform over the next 12 months. Long-term investors should simply vote their conscience this November.''
If politics doesn't call the tune for markets, the reverse still might be true. Stocks could have quite a bit to tell us about how the election will go. Unless MISS is going to prove utterly misguided, Bush could use a rally.
To contact the writer of this column:
Chet Currier in New York ccurrier@bloomberg.net.
To contact the editor responsible for this column:
Bill Ahearn in New York bahearn@bloomberg.net.
Last Updated: July 30, 2004 |
