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Stock Market Picks 90 Percent of Presidential Elections

Lauren Fox

If voters wish to predict the 2012 election, one investment firm is instructing them to push polls aside, ignore political pundits, turn off the debates, and follow the Dow.

InvestTech Research, an investment firm out of Montana, says the stock market is the most reliable indicator of who will win the presidency and has been for more than 100 years.

"The election is a reaction to the stock market. If you see strength in the market, consumer sentiment and confidence among the voters is higher. If you see volatility, you are going to see investors take that out on the incumbent," says Eric Vermulm, an InvestTech Research senior portfolio manager.

[Read: Never-Wrong Pundit Picks Obama to Win in 2012.]

No number of bumper stickers, catchy campaign slogans, or super PAC-attack ads can influence an election like stock numbers, Vermulm says. The math is simple. If the stock market gains in the two months leading up to the presidential election, the incumbent party wins. If the market falls, the incumbent party loses.

Since 1900, the stock market has correctly forecast nearly 90 percent of presidential elections. In the 28 elections tracked, there have been only three exceptions: 1956, 1968, and 2004.

In the 16 elections when the stock market climbed before Election Day, the incumbent party was re-elected 15 of 16 times. And, in the 12 election years when the stock market suffered losses, the incumbent party lost 10 of 12 elections.

[The Plan to Break Obama]

With the Dow flirting around 13,000 points today, President Barack Obama's prospects look promising, but it's a long way to November.

"A lot of our indicators remain bullish," Vermulm says. "We see no major warning signs on the horizons, but we are nine months away."

And while investors sit, waiting for the outcome of the election, the great irony remains that 2012 might inevitably be left up to Wall Street.

"Wall Street typically worries about how politics might affect the stock market, perhaps, presidential candidates should worry about how the stock market might affect their political outcome," writes the study's author, Cathy Hetrick, a senior portfolio adviser at InvestTech.

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