S&P 500 "Indicator" still predicting Bush loss.

Here's the update of the stock market indicator. I wouldn't bother with this, but for the idiotic pundits on CNBC and elsewhere who say asinine things about what the market means in the election and what the election will mean to the market.

Wharton prof Jeremy J. Siegel ("Stocks for the Long Run") and others have done extensive studies of stock market behavior before and after presidential elections. One of the overwhelming conclusions is that the US stock market does much better under Democratic presidents than under Republican ones.

Another conclusion, illustrated by this graph, is that if the stock market is doing well in an election year, the incumbent party usually wins. If the incumbent party is in for a loss, the stock market usually trades sideways, or is flat-to-poor in performance. Since I don't want to risk a post hoc fallacy or anything, I won't draw any conclusions as to what causes what. But the academics have pointed out the correlation, and I find it interesting this year.

The blue line in the graph represents average returns for the S&P 500 for election years in which the incumbent party has retained power in the presidential election. The red line represents average retruns for the S&P 500 for election years in which the challenging party has won the presidency. The green line represents the year-to-date return for the S&P 500. As you can see, the green line is quite close to the red line. If one were to be as foolish as the pundits one sees all day on CNBC, CNN, or MSNBC, one would say that the stock market is predicting a Kerry win.



I will just say that the stock market is providing returns very close to the average return since 1900 for election years in which the incumbent loses.