If S&P stays above 1,200, Obama re-elected: charts
The stock markets appear to favor a Democrat at the White House but President Barack Obama’s chances hinge on the S&P’s level
President Obamas chances of being re-elected and the S&P 500 are in a close relationship which seems to suggest that the stock markets favor a Democrat, Paul Dales, senior US economist at Capital Economics, wrote in a market note on Thursday.
But it is important not to confuse correlation with causation. Obamas election chances and the S&P 500 are actually both being driven by the incoming news on the health of the economy, he wrote.
Nevertheless, based on that correlation, we would expect Obama to be re-elected as long as the S&P 500 remains above 1,200.
The S&P 500 closed at 1,403.44 on Wednesday, having risen more than 22 percent over the past year. Analysts have said that emerging markets course for the remainder of the year will depend on the resolution of the eurozone debt crisis but also on how the U.S. officials will deal with the countrys fiscal and debt issues.
The latest polls before the November 6 election suggest a Democratic White House and a Republican Congress.
Dales pointed out that when Obamas chances of re-elections increase, the S&P 500 rises. In contrast to the conventional wisdom, investors actually seem to prefer having a Democrat as President, he wrote.
The correlation would seem to have a lot more to do with Obama being the incumbent, however, rather than the fact that he is a Democrat. Looking back to the 2004 election, there was an equally strong positive correlation between the S&P 500 and the chances of the incumbent Republican President George W. Bush being re-elected, Dales explained.
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But the more likely explanation is that both the chances of Obama being re-elected and the S&P 500 are being driven by outside events, which primarily means the health of the economy. Better incoming economic news boosts both the chances of Obama being re-elected and equity prices.Dales added that one party controlling the White House and both Houses of Congress would be good for the market as that would improve the chances of breaking the deadlock on producing a credible medium-term plan to reduce the budget deficit, but he acknowledged that the chances of that happening are slim.