Does the Stock Market Want Obama Re-Elected? Answer: Probably Not

Mark Perry's Carpe Diem is one of my favorite blogs, although from time to time he puts up a head-scratcher of a post.  Today is a case in point with a post about the stock market's predictive value leading up to presidential elections. Naturally, if you read carefully, the post tells you that the indicative period in the stock market is from July to October.  Great, so why post this now?  Also, you have to read carefully to understand that Perry isn't interpreting anything, but this post is nonetheless misleading because of the strong impression it gives that the stock market wants President Obama to be re-elected, which is achieved mostly by virtue of the graph and the tight relationship it illustrates.

This meme is definitely floating around and it really bugs me.  So let's get this straight folks, the stock market does not want Obama to be re-elected.  You absolutely cannot make this analysis with two data sets, you probably can't even make that analysis with any number of data sets.  Anecdotally, I can tell you, being in this whole stock market gig for a decade, that nobody makes the argument that an Obama second term is a priori good for the stock market, as in an identifiable impetus of stock market returns.  That said, nobody precludes stock market returns as a possibility in a hypothetical Obama second term and nobody thinks an Obama defeat is necessary for good performance from stocks.  However, the conventional wisdom is more or less one of two opinions: 1) an Obama re-election is likely to be accompanied by Republican gains in the Congress, thereby ensuring either gridlock or more balanced policy-making, which would probably be good for stocks or 2) a good economy helps stocks and Obama can't/won't be good for the economy, so a Romney win is better for stocks.

However, if you are impressed with simplistic two-data set analysis or if you desperately want a counter-argument to those who might take Perry's graph and argue that the stock market wants Obama to be re-elected, I can help you out. In the graph below, I've plotted the S&P 500 Index since Obama's inauguration date along with Gallup's daily tracking of his approval rating.  For your assistance, I've added trend lines and for shits and giggles I've also added a little vertical line to demarcate a little something that happened in November 2010.  So if your looking for a pretty solid relationship, look no further - from day one Obama's approval has been heading in one direction and the stock market has been heading in another.