With less than six weeks until the election, there is a 93.8% chance that Barack Obama comes back for four more years.
I can foresee this with such a high degree of assurance not because of my political experience, which is surely miniscule, but through my background as a stock market analyst.
Over the past 100 years, a single market indicator has more accurately predicted the outcome of a presidential election than any tax position, healthcare policy or political statistic.
My stock market know-how gives me an edge in analyzing this key chart and predicting the winner of this November’s election. Right now, this barometer strongly favors a Mitt Romney defeat…
The stock market has reliably picked nearly every president to win office.
InvesTech Research confirms that over the past 100 years, market direction is the most precise indicator of who will win the presidency.
Specifically, if the market shows gains in the two months before the election, the incumbent was re-elected in 15 of the past 16 elections (94% accuracy). However, when the stock market declined during that time, the opposition won 10 of 12 times (83% accuracy).
So this indicator has been on the money in 25 of 28 elections. That’s an 89.2% success rate.
Therefore, the only way Romney can win the election, with 83% probability, is if the indices drop. Why would this be the case?
Though every presidential race is different, they usually come down to a few key issues… each of which influences stock prices.
For instance, in the last election issues such as taxes (higher taxes are bad for stocks), security (influences oil prices) and healthcare (rising costs are negative) were important. However, this time around, the economy, big government and employment are the hot topics – with economy way ahead in importance.
Economic prospects may be grim to some, but the real economy is pointing in the right direction… despite reports of the contrary. It’s not great, to be sure, but it’s doing fine.
Leon Cooperman, a successful hedge fund manager, puts it best, “It’s not ebullient, not a feel good environment, but nonetheless, it’s an environment of growth.”
True enough, U.S. GDP has steadily moved higher by around 2% a year. Parts of manufacturing are stalling and durable orders in August were abysmal, but consumer sentiment is at a 7-month high. And the U.S. consumer is two-thirds of the U.S. economy.
This has kept (and should continue to keep) many of the indices near all-time highs.
Unemployment is surely a concern. However, come election time, how many people will overlook a lofty, though declining, unemployment number when stock prices are rising?
In fact, most people see Apple (NASDAQ: AAPL) moving higher and assume the best. In some respect, that’s a correct stance too.
Because AAPL comprises 19% of the NASDAQ 100 (even after rebalancings), a rise in Apple has a large impact on the major indices. For example, a 5% rise in AAPL can move the NASDAQ 100 by one percent. Year-to-date, AAPL is up about 70%, accounting for a 14% rise in the NASDAQ 100.
As long as the Appleconomy keeps pumping, most investors will be lulled into believing the economy is thriving… or at the very least that it’s not sinking. And with the iPhone 5’s success, AAPL shows no sign of slowing. This is also a stock that tends to run-up ahead of earnings announcements, and Apple next reports in late October, just a couple of weeks before the election.
All of this positively affects the stock market.
Between AAPL’s bullish trend, positive GDP and an improving jobs front, there is a strong case to be made for buying stocks. And don’t forget about Ben Bernanke…
Mr. Bernanke is perhaps the biggest contributor to higher stock prices. After all, his program artificially boosts asset prices. In fact, it’s designed to keep bond yields low, increasing the value of commodities, real estate and equities while decreasing the value of the dollar and savings.
However, this latest round of easing could backfire. And that provides the Romney camp with a sliver of hope.
Stocks rose in anticipation of the intervention, rallying 7% ahead of the QE3 announcement. By the time Bernanke actually intervened, the major indices were way overbought, suggesting a pullback was imminent. Indeed, the indices pulled back just last week to levels lower than before the announcement.
Additionally, Ben Bernanke does not have the influence many believe him to hold. Though the Fed is pushing investors away from bonds and into equities, investors ultimately decide where their money flows.
Investors may determine at any time that the slowdown in China, debt crisis in Europe and $100 crude are too much for the American consumer to handle. And don’t forget that earnings season starts in two weeks. Any downside surprises in corporate earnings could put pressure on stock values.
It’s the final two months that matter most. And the first month is in the books and biased toward President Obama. We’re in the final stretch and the direction of the market this month should clue us into who will be running America for the following 48.