by Bob Stokes
Updated: November 04, 2016
[Editor's Note: The text version of the story is below.]
Our studies show a strong correlation between the stock market's behavior and the re-election prospects of incumbent politicians. A rising market favors re-election; a falling market tilts toward rejection.
Consider the 2012 landslide victory of President Obama, which occurred after the market had risen on a 1-year, 2-year, 3-year and 4-year basis. On the other hand, looking further into history, President Hoover suffered a resounding defeat in 1932 after the stock market crash.
Take a look at this chart, which dates back to even before the election of George Washington:
But when an incumbent is not running, like in 2016, we found no consistent link between stocks and the political party that takes the White House.
With that in mind, we offer no prediction on whether Donald Trump or Hillary Clinton will win on Nov. 8.
The stock market, an immediate reflector of social mood, however, offers an explanation for notable aspects of 2016's raucous political season.
In a Special Section titled The Socionomic Case for a New Bull Market in Political Scandals, the just-published November Elliott Wave Financial Forecast says:
Today, stocks are still near their prior high, so the media is very much in Hillary’s corner. So far, thousands of WikiLeaks revelations have failed to land in the mainstream newspapers. On the contrary, Tuesday’s USA Today lead story was not about how the Clintons’ behavior had sparked a firestorm but how the director of the FBI caused a firestorm with a letter to Congress. It won’t last much longer. If Mrs. Clinton wins the presidency, she will face a media uprising worse than Nixon’s, when the nominal Dow joins the ongoing bear market in the Dow/gold ratio.
Indeed, the nominal Dow is trending lower since Aug. 15, when the index hit a high of 18, 688.40. Moreover (CNBC, Nov. 3):
The S&P 500 has logged losses eight sessions through Thursday, in only the second time it's done so in the past two decades.
The last time the large-cap index fell in eight consecutive sessions was in October 2008.
The market is fractured, and our analysis suggests near-term volatility is ahead.
Yet, the bigger picture shows the uptrend that started in March 2009 might have more to go. But more than seven years is a long stretch for an uptrend. When the reversal finally arrives, whoever wins the White House might wish they hadn't.