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2012 Presidential Election: The American Psyche and the Markets
US Presidential Terms, and their impact on the S&P 500, have a very predictable outcome most of the time. The market is relatively flat for the first 2 years and then rises gradually in the last two years. Is this a coincidence? We think not.
Obama finds himself in a very precarious, but fortunate position at the moment. Despite record volatility for most of his Presidency, the market is significantly higher than when he took office. Holmes asks the question: Does this ensure victory for Obama in the 2012 election?
Victory for the president depends on what the market does in the next few critical months. Our team at Pinnacle has been preaching this for months as Bernanke and Obama scramble to hold the economy and markets together just a little bit longer, in an all out effort to keep their jobs.
In research conducted by Adam Hamilton, he determined when stocks rise in September and October; the incumbent party usually wins the presidency. If equities drop, the incumbent typically loses. He commented that, “Out of the last 28 presidential elections, this simple indicator has proven correct 25 times. This is an astounding 89 percent success rate!”
This is a game of the psyche. He went on to comment that, “When the stock markets are strong so everyone feels better about the future, incumbents are more likely to win.”
Holmes leans on historical data which shows since 1928, August has historically been a “much stronger month” during election years as compared to all years. Time will tell what this August will bring, as the markets trade sideways, prior to a coming announcement by the Federal Reserve.