The Cloudy Crystal Ball, Part 2

“We have two classes of forecasters: those who don’t know — and those who don’t know they don’t know.” – John Kenneth Galbraith

Politics and the Stock Market

Forget about the issues, the upcoming presidential debates, or even voter turnout. Why even bother to vote, when the stock market can tell us who will win?

An article posted today on the CNBC website, ”Who’s the Next President? The Stock Market Says…” gives us an “analysis” of the upcoming presidential election. The article’s writer bases his analysis on the Stock Trader’s Almanac and Standard & Poor’s, publications that are more commonly used to make predictions and comment on stock market trends. It’s a very entertaining article, but has no informative value in helping you to become a more successful investor. The following quote is very revealing:

“Presidential election years are usually good for stocks, no matter which party wins, while the market’s performance in the three months prior to the November vote is a reliable indicator of which candidate wins.”

Well, so far 2008 has not exactly been a banner year for the stock market, so the first part of that quote has been shot full of holes. But consider this, suppose that you had taken this “prediction” to heart and invested 100% of your capital in stocks in January, instead of following your well thought out investment plan? Where would you be now?

The tail end of that quote tells us who the likely winner will be in the presidential election, depending on whether the stock market is up or down over the next couple of months. This is a very limited view of what economic factors may influence voter behavior — the rate of inflation, the unemployment rate, not to mention the popularity of the present administration, surely all play a part. Certainly using just one indicator – the stock market – is misleading at best.

The article also attempts to give some guidance on how well the stock market will perform, depending on who actually wins in November.

Try to make sense of any of the analysis, if you can, whether you are a short-term trader or a long-term investor. But, please, don’t take anything in this article too seriously. These type of forecasts work, unless they don’t. It is all just “noise.”

And, please, do vote.