Incumbent Presidential Winners - Be Careful What You Wish For

Tyler Durden's picture

Between Obama's (equity-market-driven) election odds at Intrade and IEM, WaPo's projections, and Gallup's poll results, it seems an incumbent victory is all but guaranteed - even after over-hyped video clips are distributed. Adam Parker, Morgan Stanley's erstwhile realist strategist digs through the empirical data and finds that Gallup's latest poll suggests the 2012 election will not be close. History is also on Obama's side - 10 incumbents have won while 3 (Hoover, Carter, and Bush Sr.) have lost since 1900. The trouble for equity investors is that, despite what you have been told (and we already warned) about election year cycles, the post-election incumbent-victory performance is on average a 4.5% loss over six months. So add this 'doldrum' hangover to the post-election European 'event risk', the US 'fiscal-cliff' and debt-ceiling debacle, and China's Politburo meeting on Nov. 6th and it looks like Thanksgiving can't come soon enough.

 

The S&P and the IEM Contract for Obama’s Re-Election Appear to Move in Tandem

 

While odds and polls may be high, WaPo's projections perhaps offer some hope to Romney...

 

Quadrennial Presidential and Congressional Elections Since 1928

 

On Average, the Market Rallies Before and Sells Off After an Incumbent Is Re-Elected

 

And in case you wondered whether Obama was the driver of equity market strength as opposed to equity market strength driving Obama's increasing odds of a win - here are the results...

 

Source: Morgan Stanley