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I am sure by now everyone knows that Donald Trump appears to be going into the November election as the Republican nominee. I am also sure that the title of this blog release causes some form of reaction in you. Many friends and clients have asked me the past few months, “Can Trump really be the next President of the United States?” I will answer that question with a few interesting points of data regarding the stock market and elections.
From experience, I believe the stock market is a very good indicator of who will win the election in November. For me, there is no need to be glued to the debates, the Saturday Night Live skits, Facebook discussions, etc. I firmly believe that, if you become a student of history and learn to understand trends, the stock market is a leading indicator of many things, including the Presidential election. In 2008, I told many people in Indiana (typically a Republican state) that Barack Obama would be our next president. Quite a few thought I was off my rocker, but I have found that the stock market is one of the strongest trend indicators for election results. After Barack Obama won a landslide victory in the 2008 election (he even won the state of Indiana), I did further research on the subject. Here are some interesting findings in presidential elections since 1928:
- In 14 election years, we had a positive return in the US stock Market. On 12 of those occasions, the incumbent party held the presidential office.
- In 8 election years, we had a negative return in the US stock market. On 7 of these occasions, the incumbent party failed to hold the presidential office. If you remember 2008, President Bush had a high approval rating in the beginning of the year, but when the stock market fell into bear market territory, the Republicans’ chances of holding the office went with the market.
So 19 of 22 elections went with the stock market trend; that is 86.4% accuracy, which is pretty strong!
So can/will DonaldTrump be our President in 2017? It is too early to forecast, but here are a few other factors to consider:
- Since 1928 we have had six elections after a President has served two terms. In five of the six, the stock market return has been negative. This historically has favored the opposing party.
- In 2000 and 2008 (Clinton’s 8th year, and Bush’s 8th year), the stock market returned -9.1% under Clinton and -37% under Bush). I don’t think we are in a market like 2008, but if you read my reports you know that I see some concerning things ahead.
- When January starts a year off with a negative monthly return, the trend has a high probability of the year being negative for stocks.
- In the past 20 years that I have managed money, I am seeing currently the stock market at its second highest in terms of valuation (2000 tech bubble valuation was higher).• During Obama’s Presidency, we have NOT had a bear market. Although 2015 stocks were relatively flat in terms of return, we have had seven years of positive returns, which is the second longest stretch in US history; the average bull market lasts four years.
In conclusion, if you want Donald Trump to be President, trends suggest you need a bear market in stocks to get him the votes needed. The months of May through October should hold the answer to who will win the election in November 2016. If the DOW stays above 17,500 by the time of the election, the stock market favors the Democrat nominee (which appears to be Hillary Clinton). If the stock market turns back down and goes back to the lows of February 2016, the stock market favors the Republican nominee (which appears to be Donald Trump). At an 86% predictability rate, that is a pretty strong trend.