Several clients have inquired lately about how we think the election will affect the stock market. The answer is a sort of non-answer: based on historical data, the stock market has done well under both parties, and it has done poorly under both parties. So the election itself will have a negligible impact on the stock market. Indeed, stocks look forward. Today’s prices are reflecting conditions a few months hence. The market is already “past” the election and looking into 2013.
Interestingly, though, there is some evidence that the stock market may affect the election. According to InvestTech Research, if the stock market rises in September and October prior to an election, the incumbent wins 90% of the time. (See one article on this phenomenon here.) Intuitively, a rising market is indicative of satisfied investors who feel pretty good about the way things are going, and don’t want to change the status quo. Of course, 90% is not 100%. This year could fall into that 10% bucket; we’ll just have to wait and see.