The Dow as election indicator
Wall Street does not love President Barack Obama, which is demonstrated by large contributions by bankers to Mitt Romney.
But if all the bankers cared about were stock prices, they might be more sympathetic to the president. The stock market has done better than average during his tenure, not to mention better than during either of the two terms of his predecessor.
In the past, such a healthy stock market performance has usually been followed by a victory for the incumbent party.
There have been 28 presidential terms since 1900, and based on the performance of the Dow Jones industrial average — the only major stock index with a history that long — during each presidential term, and on what happened in the election that followed, the Obama term has been well above average, with a compound annual gain through Oct. 24 of nearly 9 percent.
When the Dow has risen more than 5 percent a year, the incumbent party has retained the White House in 11 elections and lost it in only three elections. When the market fell, or rose at a rate slower than 5 percent, the incumbent party has lost the White House in eight of 13 elections.
In 18 of the previous 27 elections, the incumbent president was on the ballot, winning in 13 of the elections. Of the five losers, only George H.W. Bush in 1992 was defeated despite a good stock market performance over his term.
Both he and Taft, who lost to Wilson in 1912, might have prevailed had not third-party candidates — Theodore Roosevelt in 1912 and Ross Perot in 1992 — drained votes from the incumbent. Hoover was blamed for the Depression in 1932 and had no chance of winning reelection.
The other two presidents defeated were Gerald Ford in 1976 and Jimmy Carter four years later. Each had presided over a difficult
economy and a lagging stock market during a period when the ability of the United States to be competitive internationally was widely questioned.
There are echoes of that attitude now, although it is China, rather than Japan, that is deemed to be the principal competitor.
It is not uncommon for Wall Street to campaign aggressively against a president who presided over a rising market. In 1936, Franklin D. Roosevelt was denounced as a socialist, much as Obama has been this year, by Wall Streeters whose banks had been saved largely by government actions. In 1948, the stock market sold off sharply after Truman scored a stunning upset in his bid for a full term.
The best stock market sector over the past four years has been consumer discretionary companies — those that sell things that consumers do not absolutely need. Their success is a testament to how much the economy has recovered. Financial stocks as a group are about where they were when Obama won in 2008, but some of them remain depressed.
Among the 30 stocks now in the Dow Jones industrial average, Bank of America has been among the worst performers while UnitedHealthcare, a health insurance company, is one of the best performers. While the health insurance bill pushed through Congress by Obama has been denounced as a government takeover of healthcare, private insurance companies seem likely to be among the major beneficiaries if it is allowed to go into effect.