Presidential Campaign May Scrub Shine Off Stocks

Tuesday, 06 Mar 2012 07:44 AM

By Dan Weil

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Stocks may be enjoying their best start to a year since 1998, but if history is any guide, the uncertainty of the presidential campaign will soon erase the market’s luster.

In its study of stocks in presidential-election years going back to 1900, Ned Davis Research finds that stocks generally open the year with a bang but hit the skids by spring, The Wall Street Journal reports.

So far this year, the Dow Jones Industrial average has soared 6 percent. But Tony Welch, an analyst at Ned Davis Research, says the Dow may well fall back 5 percent or 6 percent in the next few weeks.

Editor's Note: Meltdown on Main Street Coming, Prepare Now

"We think the election-year trend could be strong this year," Welch tells The Wall Street Journal. "The market prefers certainty. It doesn't like unknowns."

Some other market gurus also expect stocks to correct downward amid Europe’s debt crisis and sluggish economic growth in much of the world.

To be sure, stocks generally recover from their pre-election jitters, Ned Davis found. On average the Dow has appreciated 7.5 percent in presidential years since 1900, compared with 7.35 percent for all years.

Meanwhile, InvestTech Research finds that stocks are a good predictor for the election, according to U.S. News & World Report.

The firm’s research shows that in 25 out of the 28 elections since 1900, if stocks rise in the two months preceding the election, the incumbent party wins. If not, the out-of-power party wins.

Editor's Note: Meltdown on Main Street Coming, Prepare Now

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