The Results: Investing Prior to, During and After the 2008 US Election


On 2008 July 18 we wrote an article for Business Week’s “Business Exchange” about predicting the stock market prior to, during and after U.S. elections.  Here are the final results for the year after President Obama was elected (2009).

Here’s What We Said on 2008 July 18

Around this time every US election cycle you start hearing words like “the stock market always goes up after an election” or “the start market always goes down after an election.” As we’ve all suspected, it’s a bit more complicated than that. These “rules of thumb” don’t really apply in their generality, but you can make some strategic plans on when you likely should be in the market and when would be a good time to sit out of the market if you are a low risk investor.

Our final conclusions?  Read on…

A picture tells a thousand words (Dow Jones prior to 2008 US elections):

Prior to President Obama's election in 2008

2009 February 22

A month after President Obama’s inauguration, here’s what that same graph showed with updated data.

2010 April

After reviewing the Dow Jones data for the year following President Obama’s election (ending on 2009 December 31), although the market remained depressed due to the recession, the trend was clearly positive.

Conclusions

During the last 9 elections (Carter through Obama) the market has increased for post-election years on 5 occasions.  While a sample of 9 elections is not statistically significant, analyzing previous elections becomes problematic since access to trading on the stock market by the general public was relatively thin prior to President Carter.

Another interesting trend appears to indicate that the 6 months following an election are generally a turbulent time in the market, potentially due to the uncertainty following any presidential election.  This is regardless if the president is being re-elected (a “known entity”) or a new president is being elected.  President Carter was the only exception with a relative flat market.  Uncertainty in the market was generally at it’s maximum during the 2 months following the election which we’ve termed the “Election Span.”

Interestingly, political party affiliation was not an indicator of stock market performance.

The usual caveat of prior performance not being a predictor of future performance is again applicable in this analysis.

Tags: , , , , , , , , , , , , , , , , ,

Leave a comment

Leave a Reply

You must be logged in to post a comment.