Elections and the Stock Market

Keenan Hauke with Samex Capital

Everyone loves elections. (Or maybe it’s just me. I am a bit of a geek with that stuff!) Well, like it or not, a big one is on the way. This coming election may not be as fun to talk about as the next Colts game, but the impact on our lives is far more important. At heart, I am a fact driven decision maker and I believe there are some facts hiding among all of this pre-election hype that can make us a lot of money.

First of all, there is a website you can check out that will give you the odds of an election outcome. I have been following www.intrade.com and its predecessor for several years and I have never found anything more accurate when it comes to predicting election results. Right now, intrade is showing a 72% chance that the Republicans will re-take the House in November. The stock market has known this for a while, which is why it is doing pretty well over the last few weeks.

I have seen recent research that also shows why the market has been holding up since all of the bad news in the spring. Leuthold, which is a mutual fund company out of Minnesota, claims a direct correlation between stock market and election cycles. The evidence backs up their claims. Since 1942, the stock market has been higher six months after a mid-term election 100% of the time. The average gain is 18%. Going back to 1913, which is the year the Federal Reserve and federal income taxes were introduced, the stock market experienced an average gain of 23% over the following 13 months. This is one of the most accurate stock market cycles I have ever seen.

The coolest thing about all of this research from Leuthold is that prior to 1913, there is no correlation between stocks and elections. The stock market didn’t care about politicians until politicians got all the power. The lesson here is that stocks should do quite well for the next several months. So, get out, vote and make some money!