the stock market and oil market indicators favor a John Kerry victory...
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MMA COMMENTS FOR THE WEEK BEGINNING OCTOBER 18, 2004
<<...The Presidential debates of 2004 are over, and by all accounts, President George Bush gave his best accounting at the final one last Thursday evening. Going into the debate, on October 12-13, the Zogby poll has Kerry and Bush tied at 45% each, and the Gallop poll had Kerry ahead 49 to 48%. But on Friday, the day after the debate, the Zogby poll showed George Bush jumped to a 4 point lead, 48 to 44%, over John Kerry. In sympathy, the U.S. stock market rose on Friday after taking a beating into Thursday. It seems that we have two market indicators as to who will win the election. According to a report in one of the leading business magazines, the incumbent loses whenever oil prices soar into an election. And oil prices are indeed soaring now, reaching new all-time highs close to $55.00/barrel in the futures market. And of course, our own “Pre-Presidential Election Year” cycles indicator shows that there is usually a stock market trough between October and March preceding the election. If that low is then taken out, the incumbent usually (but not always) loses. Well there was a low in March, and it was taken out in May, and then that low was taken out in August, which favors the challenger defeating the incumbent. If, prior to the election, the market can then rally to take out the high between those two lows, it may negate this indicator. That happened in 1984, when President Reagan was re-elected. After posting the PPEY low in February, the stock market rallied for a little while, then fell again to new lows in the last week of July. But by the election, the Dow Jones Industrial Averages rose 15%, and Reagan was re-elected in a landslide. That doesn’t seem to be happening this time, as the market continues to lose ground, and has not rallied above the highs of June, which were 10,471-10,487.
Are these market indicators valid? Well the stock market one has been fairly consistent since 1940, when President Roosevelt was re-elected at a time the country was concerned more about national security issues than economic ones. Like today, the market just continued making lower lows and lower highs right into the election, and Roosevelt won anyway. Except for Ronald Reagan in 1984, that has not happened since. And the crude oil correlation is not nearly as strong a correlation as the article in the business magazine suggests. In 2000, oil prices did rise sharply into mid-October prior to the election, reaching $36.90./barrel. But then by the time of the election 3-4 weeks later, the price had dropped sharply, to 31.10, a decline of about 15%. Bush, the challenger did indeed win. But in 1996, oil prices also rallied sharply into the election, from 18.72 in early June to 25.80 by the last week of October, a gain of nearly 40%! Yet the incumbent, Bill Clinton, won re-election. And in 1992, crude oil topped out in late June at 22.95. By mid-August, prices dropped about 10% to 20.78. Then posted a modest recovery rally to 22.37 by mid-October (not a new high), and then dropped sharply into the election, below 20.00. One can not consider that a case of “prices running up” into the election, as they were actually at a multi-month low the week of the election. Yet the challenger, Bill Clinton, defeated the incumbent, George Bush Sr...>> |
