Intrade.com puts President Obama's latest re-election odds at 57.5%; off from the 2012 closing high of 61.4% hit on both March 12th and April 16th. The broader market peaked right in the middle of that time period when the S&P 500 closed at 1419 on April 2nd. Whether or not you believe in history repeating itself, Jeff Hirsch of the Stock Trader's Almanac and author of The Little Book of Stock Market Cycles, has some historical data and odds tying together the market and presidential elections that rarely misses.
With less than 12 weeks until the elections, Hirsch gave us the latest snapshot of what the market is signaling about the November outcome.
"It's suggesting that Obama has a better chance than people think," he states. "Incumbent victories are accompanied by much larger gains in the stock market. The Dow Jones has been up significantly higher in election years when incumbents win. And it looks like the track that we're on here."
The DJIA has seen nice gains this year, up nearly 8% year-to-date, while the S&P 500 has climbed an impressive 12%.
"The important thing is that we have an incumbent running for re-election, and that's been good for the market overall," says Hirsch. According to the Stock Trader's Almanac, since 1901 the DJIA has posted 9% average gains during the year when an incumbent is seeking re-election.
But if stocks take a nosedive in September and October, the President's odds will certainly be under pressure. If history is our guide, that scenario would give way to a November post-election rally.
Further, Hirsch points out that there are misconceptions about how gridlock impacts the market.
"Everyone thinks a Republican president has been better for the stock market. Actually it's Republican Congresses that have presided over the greatest market gains; about 16% on average," he says. "You combine in a Democratic President, and you get a 19.5% average rise, the bar just shoots up. That's the combo that's been best for the market."
Split balance of power within Congress, like we have now, and you get what Hirsch calls "the death knell for the market and economy."
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