Where the analogy between 1982 and this year falls down is the outlook for the economy, which couldn't be more dissimilar. One need only look at the stock market's action then and now to see that, in 1982 we were on our way up instead of now being, at best, dead in the water.
From its low on Aug. 12, 1982, and election day (which coincidentally also fell on Nov. 2), the Standard & Poor's 500 exploded with a 34.2% gain as the stock market anticipated the economic recovery that was to begin in 1983. Morning in America, as the GOP would dub it in 1984, finally was about to dawn, and the markets and populace felt it.
Contrast that to today. The S&P 500 is off 9.8% from its recent high and, at best, is stuck in a trading range.
The markets' disparate actions reflect economic policies going in opposite directions.
In 1982, the Federal Reserve led by Paul Volcker was beginning to loosen its vise-like grip on monetary policy as the back of inflation was being broken. Short-term interest rates already were on their way down from record peaks of 20% and the fever broke that summer. By election day, they were back into single digits.
Now, short-term interest rates are pegged virtually at zero. With no downside for rates, there's no upside for the markets, the economy and, therefore, the polity.
More importantly, back in 1982, the markets sensed the full impact of the Reagan tax cuts, which wouldn't be fully felt until the next year. Anticipating their full impact in 1983, the bull market of the 1980s took off.
Now, the economy faces the possibility of the reversal of the Bush tax cuts. Odumbama favors retaining the current rates for those earning under $250,000 and raising capital-gains and dividend levies to 20% from 15%. Without Congressional action, tax rates will go up for everybody and dividends will revert to ordinary-income rates.
In other words, in 1982 we had nowhere to go but up and the stock market sensed the imminent ascendance of the economy and, indeed, the nation. And the elections that year reflected that
Today, fiscal and monetary policies have been all but exhausted. Unemployment seems more like to increase than to ease. Uncertainty pervades the U.S. economy. To the extent the stock market has recovered it's because Corporate America derives about half of its earnings from abroad.
So, in spite of superficial similarities in the unemployment rate and presidential approval ratings, things couldn't be more different today from 1982. Then, the U.S. economy was about to embark on a generational advance. Now, our direction is, at best, uncertain.
November's election results will reflect that stark contrast.
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