Don't Bet the Farm on These Election Year Statistics
Linda Stern 1996, Reuters News Service, St Louis Post-Dispatch (MO)
It's almost time to settle in for the summer conventions and campaigns to follow. But before the mud starts to fly, take a minute to think about how to keep your portfolio unsullied once President Bill Clinton and GOP nominee Bob Dole start flinging financial policies around.
The statistics that correlate election years with stock, bond and interest rate markets are ubiquitous, and tend to be reassuring.
Just holding elections usually guarantees most Americans a good year in the market. But get out your salt shakers. These fun statistics are also at least a little meaningless, because stocks are like sports: There may be odds and probabilities, but at the end of the day, any team can win or lose.
So, past performance is no guarantee of future earnings, right? But look at these past performances! According to Yale Hirsch, a New York state market watcher and the dean of the cycle trackers, "The presidential election every four years has a profound impact on the economy and the stock market."
The last time the Standard and Poor's 500 top stocks fell in an election year was 1960, when a recession started and we chose Kennedy over Nixon.
Research by mutual fund firm T. Rowe Price reveals that the Dow Jones industrial average advanced in 17 of the last 24 election years.
Surprisingly, interest rates rise, too. The conventional wisdom is that presidents push the Federal Reserve to hold interest rates down until the election, but in fact it often goes the other way, as presidents push for economic growth and Fed chairmen go out of their way to prove their independence.
Rates fell decisively during the Bush/Clinton election year, but in the 40 years before then, short-term rates fell decisively in only one election: that same 1960 contest when we ousted the incumbent party.
So, if all remains true to form, stocks and rates will continue to rise with the rhetoric. If so, that bodes well for Clinton. …