Investors should be careful about assuming that strong U.S. economic conditions guarantee that President Donald Trump will win another term in November, Morgan Stanley strategists warned.
“The most common misconception among investors we talk to is that solid economic growth assures the president’s re-election,” strategists at the Wall Street bank including Michael Zezas wrote in a note Monday. “Our take: be reactive, not proactive, and let plausible policy paths guide you” with regard to the campaign, they said.
A key statistical problem with coming up with rules of thumb for presidential elections is that there’s a small sample size. The number of post-war candidates running for a new term is less than a dozen. “As such, drawing generalized inference from such samples has inherent questions about statistical validity,” the Morgan Stanley strategists wrote.
Another problem, for Trump, is that the general observation that presidents win re-election when the economy is doing well conflicts with the accepted wisdom that incumbents with net negative approval ratings lose.
“We have no precedent for an incumbent with a good economy but weak poll numbers,” Zezas and his colleagues wrote. Statistical evidence “suggests a good economy might be a necessary condition for an incumbent to win, but we think the evidence is unconvincing that it is sufficient.”
Their conclusion: “There are no shortcuts when it comes to preparing for the campaign as a market event.”
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