How will the presidential election
affect the economy?
W e are now living through the
most serious economic crisis
since the Great Depression. Warren
Buffett has called this crisis the eco-
nomic equivalent to Pearl Harbor.
The economy clearly affected the presidential race. But
how will the election results affect the stock market?
It is true that past performance is no indication of future
performance, but it’s hard to resist looking back at how the
markets have responded to presidential politics.
Stock market consultant and analyst Barry Mendelson has
written about this issue and has put together the following
statistics and trends:
This year's record-setting voter turnout caps a trend that
has been building over the past two decades. During the
previous three presidential elections, the total number of
voters as a percentage of total eligible voters increased sig-
nificantly (see Table 1). (This year's final numbers were
not in at our press time.) Electoral votes show a landslide
in 1996, while the Republican wins in 2000 and 2004 were
*in millions. Data: www.archives.gov
Source: CMC EResearch
STOCK MARKET PERFORMANCE DURING
H ere are some interesting observations on market per-
formance related to presidential election years. Will
all these trends continue to bear out?
When the economy has been in a recession or entering
one during a presidential election—1920, 1932, 1944,
and 1960—the S&P 500 has fallen 3% on average. The
incumbent party lost three of those four elections.
Measured by the returns of the DOW JONES INDUSTRIAL
AVERAGE, there have been 15 bear markets since 1958, and
four started in a presidential election year—1960, 1968,
1976, and 2000 (although only 2000 ended in the red).
Over half of election years since 1952 have posted a nega-
tive return for the first four months, but all except 2000
recovered before year's end. See Table 2 below, for term-
year returns and Table 3 below, for ma