How the Election and Economy Will Impact Your Portfolio


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There's plenty of data to help handicap the market during Presidential election years and it happens to be siding on the investor's team when it comes to an incumbent up for re-election. Jeffrey Hirsch, the editor-in-chief of the Stock Trader's Almanac crunched those numbers and says since the beginning of the Dow in 1896, an incumbent president has run for re-election 19 times; 14 of those were up years for the DJIA.

"Just the fact that there's somebody in office running again is a good sign for the year — 9% on average — what happens is early on if it's a real popular president doing well the market stays up," Hirsch says. "If you've got someone really unpopular come election time and they get ousted, there's a rally in November/December, sort of a 'ding dong the witch is dead' type of rally."

As for those five times when the trend didn't hold, only two were particularly bad years: 1932 which saw the removal of Herbert Hoover and 1940 when World War II was already raging in Europe.

It's not just the election that offers insight into the next eleven and a half months. Hirsch notes that the end of the "deflation fear period" should be a good sign in the short-term, but further down the road it "puts a cap on things."

He cites a housing market that picked up and then flat-lined, consumer confidence that has come up (but not enough), and improving unemployment numbers as a sign that the economy is on the mend. He says it is "good enough to keep us from having a really bad year" but not good enough to see a breakout to new highs.

Specifically Hirsch is looking at 5-10% growth year-over-year, with a Dow target somewhere between 13,000 and 13,500. Still, he cautions the economy, the election, Europe and any number of other international factors could lead to amended forecasts in either direction.

Then there's the market volatility — the same that plagued investors throughout 2011. Hirsch says it's here to stay again in 2012.

"Come spring you start looking for a technical trigger," says Hirsch. "Get a little bit more on the sidelines, take some profits, cover yourself...and then get back in for the year-end rally...Trade the seasons, trade the range and you should do okay."

How are you playing the election year, the economy and the volatility? Tell us on our Facebook page or in the comments below.

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