What the Election Means for Your Investments One Tip from Elections Past: Hold Stocks in 1996 and US Treasury Bills in 1997
Guy Halverson, writer of The Christian Science Monitor, The Christian Science Monitor
With the presidential election campaign now well under way, investors should be alert to how the political campaign may affect their savings and investments. Based on history, there is a direct correlation between the four-year US election cycle and what happens in stock and bond markets, experts say.
The period from Labor Day to the November election, for example, tends to be good for financial markets. But the first year for a new president or the fifth year for a second-term incumbent tends to be challenging - often down for stocks.
Some observers say these patterns reflect incumbent presidents' efforts to have the economy strong as an election approaches, and to get bad economic news - such as recessions - out of the way early in their terms. Whatever the reasons, based on past cycles, 1997 "will probably be a bumpy year" at best, says Rao Chalasani, chief investment strategist at Everen Securities Inc. in Chicago. Here are some frequently asked questions regarding the four-year election cycle: How do stocks do in election years? In general, they do well. In the past 50 years, "only one presidential election year has seen the Standard & Poor's 500 stock index lose ground between Jan. 1 and election day," says James Stack, who publishes InvesTech, a market report based in Whitefish, Mont. That year was 1960, when Democrat John F. Kennedy was elected. The S&P 500 closed Friday at 655.68, up from 620.73 on Tuesday, Jan. 2. Do any indicators tend to forecast the election outcomes? Two gauges are worth watching, some analysts say. Mr. Stack, looking at data going back to 1900, says that if the Dow Jones industrial average falls 10 percent or more between Jan. 1 and election day, the incumbent party tends to lose the White House, as in 1920, 1932, and 1960. The other indicator to watch is consumer confidence. Since the Conference Board in New York began tracking consumer confidence in 1969, no incumbent has been thrown out if the index rose in the 12 months preceding the election, Stack says. In the current cycle, consumer confidence is up. Are there patterns for landslides? Each of seven landslide victories this century (with incumbents winning more than 80 percent of the electoral vote) was preceded by two recession-free years. Are election years the best ones for the stock market? No, Stack says. The best years, in terms of market gains, have been the third years in the four-year election cycle, the year before the election. Election years have been stable years, with moderate gains, he says. …