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We are always looking for indications of investor exuberance and fear with which to refine our stock market models. In this entry, we test the responses of the public during recurring Gallup polls to the question:
"In general, are you satisfied or dissatisfied with the way things are going in the United States at this time?"
We hypothesize that high (low) sociopolitical satisfaction results in investors more (less) likely to buy and less (more) likely to sell, thereby affecting aggregate stock prices. Trends and turning points in satisfaction might therefore inform investment timing. To test this hypothesis, we examine polling results available from PollingReport.com (approximately monthly from 1998 to the present) and corresponding S&P 500 index data. We find that:
The following graph shows the relationship between the S&P 500 index and the level of public sociopolitical satisfaction over the period 1998 to the present, encompassing part of the Clinton administration and all of the Bush administration. The horizontal access for the polling schedule is irregular because of variations in polling frequency. No relationship between the two parameters is evident, though perhaps there is a greater-than-random coincidence of peaks and valleys. The Pearson correlation is a very weak 0.08, suggesting no significant relationship.
The following scatterplot takes a closer look by comparing the change in the S&P 500 index and the change in public sociopolitical satisfaction from poll to poll. A rise (fall) in satisfaction might produce more optimistic (pessimistic) investors and a corresponding change in stock prices. However, no relationship is evident. The Pearson correlation is again just 0.08. When we adjust the two series such that either leads the other by one poll, the correlations are even smaller and negative. These results indicate that there is no significant relationship between public sociopolitical satisfaction and stock market returns. If there is a slight relationship, it is likely coincident rather than leading or lagging.
In summary, there is no significant relationship between public sociopolitical satisfaction and investor behavior. Making money on equity investments is independent of "how things are going."
For related research, see Blog Synthesis: Sentimental Journey, encompassing a broad range of equity market sentiment measures, and Blog Synthesis: Politics and the Stock Market.
