October 31, 2004


Stock market tea leaves (Larry Kudlow, October 30, 2004, Townhall)

As more Americans have come to own stocks over the past 20 years, the stock market itself has become a leading indicator of presidential elections. One rule of thumb in this investor polling experiment is that a flat or down market in the 10 months preceding an election can spell defeat for the incumbent. In 1992, the broad-based S&P 500 was essentially flat, and the incumbent George H.W. Bush was defeated. In 2000, the index declined, and the proxy incumbent Al Gore lost in a cliffhanger. However, in both 1988 and 1996, the S&P rose more than 10 percent, signaling victory for respective incumbents Papa Bush and Bill Clinton.

Where are we today? Stocks, like everything else, are signaling a close call. Year-to-date, the S&P is higher by 1.5 percent, an underwhelming performance as far as Bush is concerned. However, since mid-August the S&P is up 6.2 percent, and in just recent days the whole stock market appears to be snapping out of its "bubble of fear" funk, to use economist Don Luskin's apt phrase. It's still possible that stocks are calling it for Bush.

Luskin and others have pointed out that uncertainties surrounding this election, such as the possibility of a highly litigious voter recount, have created a risk-averse fear among investors. The theory goes that this has induced investors to buy safe-haven gold or gilt-edged Treasury bonds rather than more economy-revitalizing stocks.

It would appear that the best way to snap the stock market out of its doildrums is to produce Osama's body, but the second best would certainly be to get some kind of Social Security privatization underway early in the next Congress.

Posted by Orrin Judd at October 31, 2004 9:13 AM


The election itself will suffice. If Bush wins, numerous companies, sitting on suitcases of cash, will hire a bit, and send the majority of in large dividends (Bush's tax plan)

If Kerry wins, these same companies will wait for Kerry's health plan to pass, and then take advantage of the "tax credit" to foist their health care costs off on "National Health Care in Waiting."

Like much else in this strange year, things have never been so starkly obvious. The sluggishness of the current market (& the economy) is based upon the vast differences between Bush & Kerry.

Posted by: BB at October 31, 2004 10:08 AM

Dream on! The markets are treading water, postponing the inevitable selloff. Bush has been lucky that the markets have held out this long. This is an economy that is kept alive by debt, and the credit line is maxxed out. Look for oil prices to stay high into 2005. If you're long the market, stay close to the exit.

Posted by: Robert Duquette at October 31, 2004 10:45 AM

Robert -

You forgot to mention Eliot Spitzer, who must have a short account in the Caymans somewhere. Or perhaps he just wants people to invest in Manhattan real estate.

Posted by: jim hamlen at October 31, 2004 12:21 PM


Posted by: Robert Schwartz at October 31, 2004 12:27 PM