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
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,
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. …