waiting vor the election-year rally - 500 Beiträge pro Seite

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Waiting for the election-year rally

By Julie Rannazzisi, CBS.MarketWatch.com
Last Update: 9:06 AM ET Oct 30, 2000 NewsWatch
Latest headlines

NEW YORK (CBS.MW) -- If history is a guide, the end of the presidential election may bring
more than relief from annoying political ads and endless punditry, according to studies
showing strong market gains following the election of a new resident to 1600 Pennsylvania
Avenue.

This means the major averages, whimpering at best in October, may still get a
much-anticipated but oh-so-elusive fourth-quarter rally.

A recent study from Merrill Lynch reveals that the median S&P 500 ($SPX: news, msgs) gain
during election years has been around 12 percent -- or roughly 1.2 percent higher than the
median of all years since 1932. And an overwhelming 85 percent of post-war election years
have been positive ones.

"Election years are traditionally up years as incumbent administrations shamelessly attempt
to massage the economy so voters will keep them in power," opined Yale Hirsch, editor of
the Stock Traders Almanac.

Since 1952, there has been only one losing April-to-December period for the S&P 500
during an election year. That took place in 1956. And in the May to December period
during an election year, no losing years have been spotted since 1952, the Stock Traders
Almanac reveals.



November has historically been among the top three months for market ret
urns. In election years, the largest Dow ($INDU: news, msgs) gains followed wins
by President Clinton in 1996 - the blue-chip barometer rose 8.2 percent that month -
and by Ronald Reagan in 1980, with a 7.4 percent rise.

Another interesting tidbit contained in Hirsch`s Traders Almanac: President Clinton has
been a "lame duck" in this last year of his second term and only seven other presidents
in the last 176 years sported that distinction. The stock market lost ground in six of those
final years, with losses ranging from 1.7 percent to 32.9 percent.

The secular bull market

Since 1984, equity gains have proved beefy during the six months following an election.
Joe Liro, a stock market strategist at Stone & McCarthy Research Associates, observes
that the S&P 500 was up by an average of 13.2 percent during the six months following
the 1996 election, up 5.3 percent in 1992, up 15.8 percent in 1988 and up 11.2 percent
in 1984.

However, presidential debuts in the high-inflation late 1960s to early 1980s haven`t been
ones to write home about. In fact, in 1972, 1976 and 1980, returns were negative in the
six months after the election as markets contended with economically challenging times.
This suggests that the market`s post-election performance is tied to the economic
backdrop and not to who is selected as commander-in-chief.

"We`ve been in a secular bull market since 1982 with few glitches in between," Liro said.
During this whole period, he added, gross domestic product growth was negative only in
three quarters -- during the 1990 and 1991 recession.



The current election year has been the first of this secular bull market in which returns on
the S&P have been negative in the six months preceding the presidential decision.

Todd Petzel, president of the Commonfund Asset Management Company, said part of
the recent uncertainty in the markets has to do with the very natural way markets try to
anticipate political events.

But that`s only one part of the puzzle.

Worries about oil prices, the repercussions of the Middle East conflict and whether the
U.S. economy is slowing too much are also at the forefront in investors` minds.

Liro of Stone & McCarthy Research Associates points out that the market`s dismal
pre-election performance this year hasn`t been a statement about politics.

"It`s about valuation," Liro remarked. The market had spectacular returns from 1995 to
1999 and sooner or later it had to hit a roadblock, he said.




Republican or Democrat?

The popular belief is that a President and Congress from different parties - political
stalemate - is the preferable scenario to keep the economic expansion going. Such an
out is likely to maintain the status quo, building the surplus and keeping interest rates
under control. Or so the reasoning goes.

Despite this preference, Merrill`s study points out that equity returns have been negative
during the first year following a spilt election result.

While market returns have been unkind to divided governments over the short-term, Merrill
said median four-year profit growth rates have been strikingly similar under Republican,
Democrat, and divided or undivided administrations.

Further, Merrill said that the performance of the S&P 500 and corporate profits since
1932 hasn`t been much different from one administration to another. And Americans,
the brokerage firm continued, don`t overly credit either party for the 1990`s spectacular
economic expansion.

"Perhaps the biggest myth of all in politics is that Republicans favor the market`s
invisible hand while the Democrats favor the government`s visible hand in the economy,"
observes David Gilmore, economist and partner at Foreign Exchange Analytics.

"The most hands on government in the post-war period was the Nixon Administration, which
instituted wage and price controls in the early 1970s oil shock. And U.S. debt grew most
under President Reagan, while being paid down under Clinton. So much for labeling," Gilmore
said.

The bottom line, Gilmore continued, is that the business cycle and financial markets determine
policy, not whether a Republican or Democrat is in office.

Tony Crescenzi, chief bond market strategist at Miller, Tabak & Co, said the market`s perception
of the two parties has shifted under the Clinton Administration, which has produced the first
budget surpluses for three consecutive years since the 1947 to 1949 period.

"Democrats are no longer looked at as the party that`ll wreck fiscal discipline," he commented.


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