Guest Post: A President's Approval Rating And Stocks: Are They Linked?

Submitted by Yves Lamoureux of Blackmont Capital

Since Obama started to talk about health care reform his approval has sunk real quickly. It is now up to a point that the consensus prefers no reform at all. I am of the opinion that such a grand task is ill-timed. After the financial fiasco of the credit bubble who’s to say that we are on solid footing. The same talking heads that claimed all was fine are out in force with the same rhetoric. Don’t believe it. A balance sheet recession will take a lot of time to unwind. People on Main Street are perhaps not as gullible the second time around. 

Only Bill Clinton in recent presidencies had a lower approval than Obama after seven months in office. 

We did push the exercise to compare a president’s approval rating and the stock market to see if we did find any correlation. Under Clinton the general trend of his approval is up and equally so is the stock market. We find that there are periods where credit creation and or destruction will dominate over the popularity of the president. The 1990’s is the period of low rates and the dot-com bubble; however,  there is a clear link with an often leading position relative to stocks.

Jimmy Carter’s rating gives a good example of the linkage between both his popularity and the stock market. From election the trend is steadily lower from 70% to about 40% in mid 1978.The stock market from that period moved from about 960 to 750 over the same time frame. sentiment will go down for a while without effect on stocks.  

Surely it is always a matter of time and Lyndon B. Johnson’s popularity in the period of 1964 to 1966 is a good example of this. By late 1965 the market dropped big from 1000 to 740 rather quickly.

Nixon is also a very interesting case as well. In a period where the general public loose faith in the chief commander the market is sure to suffer even if it lags the consensus. 

We can also compare Nixon with Truman, who got caught in the beginnings of the Cold War and got stuck in the Korean War.  Yet, he caught the start of the great bull market run from late 1949 to 1966.

George W. Bush saw a constant erosion of his rating since 2002.The market ultimately reflects the ratings and ended up lower than at the start of his term in 2001.

We can also compare to W's dad:

And then compare Poppy Bush to Ronald Reagan:

President Obama recent tumble in the polls has not been recovered. The drop was precipitous. The more he talks about health care reform the lower the ratings he gets. Can we conclude that lower ratings on the president will ultimately affect your portfolio?