While economists are pondering the relationship between politics and economic trends, Wall Street and investors, shaken by the market's recent pullback, are wondering what the election year holds for equities. Judging by past trends, the omens are positive. Wrights Investors' Service has looked at the record and reports that the stock market has risen 14.8% on average in the 22 Presidential-election years since 1900, and 20.4% in years when Republicans were incumbents.
How does the market's performance affect election results? Starting with 1888, Louise Yamada of Smith Barney, Harris Upham & Co. has analyzed 26 consecutive Presidential-election years. In 12 of the 15 instances in which the party in the White House remained in power, she reports, the market rose between the start of the year and election eve. By contrast, stocks were down in 5 of the 11 times that a new party captured the Presidency. Moreover, in 7 of those 11 instances, the market also declined during the post-election year.
If all of this seems to imply that Wall Street should be rooting for Bush, consider this: In 7 of the 10 times an incumbent President was reelected, the market was down in the following year.