Will the Presidential election affect markets?

The answer is; immediately, a little; but after a few months, none.

Apparently, US Markets have rallied after every mid-term election since 1942, then they resume their path.

There’s more evidence that stock markets change Governments. Obama benefited from a collapsed market in 2008 – which reflected and affected the turbulent economic period. This time, he may benefit from a benign market performance.

An article in Time takes a look at whether the ascendency of Obama or Romney to President would affect the financial markets. 

The conclusion from research is that the ascendency of anyone to President generates a small and momentary fillip in financial markets. 

The only time markets can fall is when a Republican president is replaced by a Democrat President.

The article says the real drivers of the market over the next few months will be;

  1. whether or not Congress comes up with a quick resolution to the fiscal cliff [and]
  2. the economic situation in the rest of the world.
There are claims that the Presidential cycle predicts stock markets, but research shows almost no correlation.
In fact, it appears it’s market performance that predicts Presidents, not the other way around.
InvestTech Research found that stock market performance during the two months before the election has been a predictor for 90% of the presidential elections since 1900. Of the 16 elections held when the stock market went up preceding the election, the incumbent was re-elected 15 times. Of the 12 elections during which the stock market fell preceding the election, the incumbent lost 10 times.

This is further evidence that politics affects very little, but reflects an awful lot.

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