Nathan Sproul: How Politics Influences the Stock Market

My colleague Dan Centinello, an executive vice president who works with me at Lincoln Strategy Group, recently wrote a great mini-overview of the American political landscape in the 1920s. Among the notable events that were mentioned: the history-making Stock Market crash at the end of the decade.  “On October 29, 1929, a day that historians call ‘Black Tuesday,’” said Dan, “Wall Street investors lost billions of dollars and so began the downward spiral into the 10 years-long Great Depression.

I’d like to elaborate further on Dan’s blog and look at how the stock market still affects today’s political arena, and vice versa.

In April, the New York Times published “How Politics Influences the Stock Market: Not Very Much,” saying:

“The market does contain important signals that can tell a bigger story, but it’s a job to separate them from the noise and pure speculation. Sometimes markets react to specific political events.”

The article also pointed to the public’s tendency to view the stock market as a political oracle:

“Markets also misread what’s going on in the wider world. They don’t have a special clairvoyance. They also don’t always say what we think they are saying.”

In this election season, however, it’s interesting to note numerous sources report historical evidence that, generally speaking, stocks tend to improve during presidential elections. In June, CNBC reported that “between the close of May and the close of October, the S&P 500 has rallied 19 of the last 22 election years (86 percent of the time) for an average gain of 6.2 percent.” Those stats were shared with caution, though, as “the results are skewed by significant volatility in a few election years.”

While the New York Times portrayed stock markets as lacking the power to reveal political predictions, a February 2016 article in Kiplinger told a different story, saying:

“Election results may not be so great at predicting stock market returns, but the converse is not the case. It turns out that the stock market has an uncanny ability to predict who will call the White House home for the next four years. If the stock market is up in the three months leading up to the election, put your money on the incumbent party. Losses over those three months tend to usher in a new party.”

 

By | 2016-08-19T16:20:48+00:00 August 21st, 2016|Nathan Sproul, Politics 101|Comments Off on Nathan Sproul: How Politics Influences the Stock Market

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