Whether President Barack Obama will win re-election this year may be foreseen by the stock market, according to Sam Stovall of Standard & Poor’s.
The performance of the S&P 500 Index between July 31 and Oct. 31 in presidential election years coincided with the result since 1948: When the gauge rose, the incumbent or his party won 89 percent of the time, and when it fell, they lost 86 percent of the time, according to data compiled by New York-based S&P.
The S&P 500 “will probably do a better job than the plethora of political pundits prognosticating on the presidency,” Stovall, S&P’s chief equity strategist, wrote in a note dated Jan. 3. “Since 1948, this election-prognostication technique did an excellent job.”
Strategists at the biggest Wall Street firms see the benchmark stock index rallying 6.9 percent in 2012, according to the median of 12 projections in a Bloomberg News survey. Obama has a 52 percent chance of keeping his job, according to bets placed on InTrade’s online system. Obama, a Democrat, is seeking a second term as Republicans evaluate candidates including Mitt Romney for the Nov. 6 election.
The S&P 500 fell to a 12-year low less than two months after Obama took office in 2009, following the biggest financial crisis in seven decades. The measure then posted the largest rally since the 1930s.
Another indicator shows U.S. stocks have the biggest gains in the third year of president’s terms. The Dow Jones Industrial Average has gained 12 percent on average, the most during the four-year cycle, according to data since 1897. The Dow added 5.5 percent in 2011, the smallest third-year rally since 1987. It hasn’t fallen since 1939.