For the first time since 1988, the Dow is on pace to gain in a president's eighth year
The U.S. is electric with election uncertainty, and Americans are keeping a collective eye on the vacillating presidential polls. That apprehension is also being felt on Wall Street, as evidenced by recent stock market and cash allocation trends. Against this backdrop, we decided to revisit our good friend the Dow Jones Industrial Average (DJIA) to see what, if anything, it can tell us about who will win the White House next week.
The Dow has added roughly 50% since 2013, which marks the first full year after the last presidential election. Unsurprisingly, as Schaeffer's Senior Quantitative Analyst Rocky White pointed out not long ago, strong stock performance in the year leading up to an election is typically a good sign for the incumbent party.
Going back to 1900 (29 presidential elections), the Dow has been up more than 20% in the four-year stretch before an election roughly half the time. In these instances, the incumbent party won the election four out of five times. When the Dow sat on a return of less than 20%, the incumbent party maintained power just 42.9% of the time. This is clearly good news for Democratic candidate Hillary Clinton.
On the other hand, there is evidence that voters can be swayed in the two months leading up to Election Day. When the Dow is down in the two months before a presidential election, the incumbent party maintained power just 23% of the time, compared to a whopping 94% win rate -- that's 15 of 16 times! -- if the Dow is up during that stretch. Currently, the Dow is eyeing a 3% loss over the past two months -- a positive sign for Trump.
Okay, so the Dow isn't doing much to help us read the proverbial tea leaves. However, it's interesting to note that the index is on pace for a 2016 gain of 3.2%, which would mark the first positive return during a president's eighth year since Reagan in 1988. It would also mark just the second time the blue-chip index has gained ground in a president's eighth year in more than a century. So... at least we've got that, America?
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