Schaeffer's Senior Quantitative Analyst Rocky White recently did some great studies on the stock market ahead of the Presidential election. I wanted to take a slightly different look at this and see what I could find.
My thinking is that September is historically a very bearish month, and if you listened to anyone three weeks ago, you'd know just how much palpable fear there was regarding a rough month this year. Well, a funny thing happened -- the market, once again, discounted all of that extreme fear and surged to new highs. And this brought about my idea for a study: What does it mean when the Dow Jones Industrial Average (DJI) makes a new calendar high during the typically weak month of September -- during an election year?
Now, it is important to remember we made a new high before Mitt Romney made his "47%" comment, and his odds of winning took a flash-crash drop, according to online wagering site, InTrade.
Back to the study ... as you might have expected, new calendar-year highs are rather good signs for the incumbent. Going back to 1916, this has happened five times (before this year) and the incumbent has won four of the elections (an 80% win rate in simple English). Honestly, without getting too political, this makes sense. The market is forward looking and hates surprises. It knows what to expect from President Obama, and this is apparently okay with stock prices here. One other interesting note is that the previous six times this has occurred, a Democrat was in office. Not sure what to make of it, other than it's fairly odd.
Here are some additional articles of interest:
The Case for Big Moves in IWM and QQQ
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