There are plenty of analogs for market and economic behavior currently echoing the past - some scary, some terrifying, and some hopeful. Barclays found two interestingly similar election-bound relationships to the current environment but with very different outcomes: Harry Truman's successful 'Fair Deal' 1948 campaign and Jimmy Carter's unsuccessful 1980 re-election effort.
Via Barclays:
In both cases business confidence and capital spending were soft during the election year; however, during the sprint to the November elections the market went in completely different directions.
In 1948, the S&P 500 dropped 11% from June through late September, bounced in October then fell sharply after Truman won in a shocking upset.
In 1980, the S&P 500 rallied 36% from March through late September, had a 5% correction in October followed by a post-election rally to higher levels after Reagan won a decisive victory.
[6]
Capital spending fell sharply in late 1948 and 1H49, driving the economy into recession due in part to a monetary policy mistake (raising the reserve requirement), while in 1981 capital spending increased sharply.
[7]
This year’s election had similarities with both. Unfortunately the market traded as if this was 1980, but it turns out we could be headed for ‘Truman’s 3rd term’ (See Figures 3 and 4).
Clearly the risk is a policy mistake – this time fiscal – which could drive another capital spending bust and a shallow recession.
So, will Obama's 2nd Term be more like Truman's 3rd or Reagan's 1st for the market and the economy - based on potential for policy mistake... or c) none of the above...