Political Indicators

In their June 2010 book Capital Rising: How Capital Flows Are change Business Systems All Over the World, authors Peter Cohan and Srinivasa Rangan mine lessons from 47 case studies to “describe the phenomenon of capital flows, present new ways to think about what causes them to rise and fall, and describe ways that our More…

…there appear to be both long-term and short-term connections between the U.S. national election cycle and stock market performance, with presidential term year 3 (1) the best (worst) and a tendency for a brief election-time rally.

…evidence suggests that public sociopolitical satisfaction and stock market valuation move substantially in step, with no way to exploit the broad sentiment measure in stock market trading.

…evidence from a small number of presidential terms supports some cautious belief in three typical phases of the U.S. stock market: (1) flat at the beginning; (2) strongly advancing in middle; and, (3) moderately advancing at the end.

You can use these three categories (and key word searches) to identify similar analyses and thereby get a second opinion on specific anomalies.

…very limited evidence suggests that regulatory activity reacts to stock market returns with a lag of one to three years and has little or no effect on future stock market returns.

…in contrast with cited research, limited tests do not support a belief that the stock market reliably generates higher and less volatile returns when the U.S. Senate is not in session.

…limited evidence suggests that Republican control of the Senate is most favorable for stocks, and that the current Democratic control of the Presidency and Congress relates to average stock market performance.

…best guess is the U.S. stock market will show first relative strength and then relative weakness in the week preceding presidential inauguration days (less so for Democrats). The week after inauguration tends to be quiet.

…stock market P/E and presidential approval rating are significantly intertwined.

…spectral analysis confirms the probable existence of U.S. stock market cycles that coincide with election cycles.

…limited evidence indicates that daily presidential election polling data have very little or no effect on returns for the broad stock market.

…there is some evidence that the U.S. stock market is unusually weak (strong) during January-May (June-December) of presidential election years.

…evidence does not support a belief that investors can generate excess returns using an industry allocation strategy based on U.S. presidential politics. Equity return anomalies based on party holding the presidency and presidential term year are marketwide phenomena.

…U.S. stocks tend be be most overvalued under Democratic Presidents, under popular Presidents, during election years and during years when no new major military conflicts start.