Wall Street prefers a Democrat president
Generally speaking, the Republican party is considered better for big business, so it would make sense that Wall Street would perform more strongly under a Republican administration.
However, studies show that since WWII the Dow Jones Industrials have posted bigger average returns with a Democrat in power. For example:
Dow Jones Industrial average returns under presidents since 1953
Republicans Overall: +8.0% Post-election year: -1.2%
Democrats Overall: +9.1% Post-election year: +9.7%
The post-election year figure is connected to the theory of a presidential cycle, which suggests that returns are at their lowest in the first year following an election, and at their highest in the third year of the term.
One study using data from the S&P 500 Index between 1952 and 2003 showed these average returns in a four-year presidential term:
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Have a read of this article for more stats and possible explanations for these patterns. It will be interesting to see how these trends are affected by the dismal market conditions President Obama has inherited.
The Super Bowl Indicator
If politics isn t your game, perhaps the Super Bowl Indicator could be used as a tried and (roughly) true predictor of market performance.
Credited with correctly picking the future direction of the US stock market 79% of the time, the Super Bowl Indicator bases its predictions on the origins of the winning team.
A winning team from the original American Football League predicts a down market, while a winner from the old NFL signals a bull market is on the horizon.
The good news is that this year, both teams playing for the title have their roots in the old NFL. So whether the winner on February 1st is the Pittsburgh Steelers or the Arizona Cardinals, the market theoretically will rise in 2009.
Easy!
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