This story appears in the June 29, 2015 issue of Forbes.
I’ve turned up a 155-year indicator that suggests Hillary Clinton will not be elected next year–and offers some interesting perspective as to the market direction in 2016 and 2017.
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An old, little-known truth: Overwhelmingly, when Republicans are elected President, stocks soar during the year they are elected (this has held true every single election since World War II, except 2000, an election in which Al Gore won the popular vote). Average S&P 500 gain: 12%, presumably in anticipation of market-friendly policies. Then stocks flipped negative during most GOP inaugural years–presumably when investors realized the new guy was, yes, still just a politician.
By contrast, when Democrats won, election years typically lagged as investors feared an antibusiness, antimarket President. But their inaugural years all surged double-digit positive (except Jimmy Carter’s 1977, off 7.4%), a whopping 21% overall. Presumably when investors realized the new guy was, yes, still just a politician.
Regardless of “why,” them’s the numbers! Playing purely historical odds, for a strong 2016, hope for a Republican; if you prefer a heady 2017, hope for Hillary.
And who will win? There’s some unnoticed historical truth here, too:
Since the Civil War we’ve elected Democrats who were either (1) already President or (2) a fresh new face (Obama, Clinton, Carter, Kennedy, FDR, Woodrow Wilson, etc.). Democrats have never elected anyone who would have been considered a likely nominee during the previous election cycle (Walter Mondale, Hubert Humphrey, Al Smith, etc.). Debate about FDR if you will, but I’ll win. He was an unlikely 1932 nominee as of 1928.
For the prototype let’s go way back to Grover Cleveland. The Republicans dominated presidential politics after the Civil War, at least until Cleveland’s election in 1884. He became New York governor only in 1883 and was Buffalo’s mayor for 322 days before that. The rest of his résumé consisted of a two-year stint as a county sheriff. He was an unknown, blank canvas, and it worked (he squeaked by with 49% of the vote). Fresh new faces became a Democratic blueprint for national coalitions, from Woodrow Wilson (two years as governor of New Jersey, and a little-known college president before that) to Carter (he was on the popular quiz show What’s My Line? in 1973, and contestants were flummoxed) to hope-and-change Obama.
Of course some fresh faces lost, too–often badly (examples: Alton Parker, George McGovern, Michael Dukakis). The nominees who were fresh faces first and old warhorses on later tickets, from Adlai Stevenson (two nominations) to William Jennings Bryan (three nominations), have never taken the prize and rarely came close.
That’s Hillary’s cross to bear. Why do the familiar Democrats fail? In history and markets “why” is tougher to know certainly than “what,” though I’d posit that Democratic coalitions require emotional legs to get marginal voters out–and old dogs have fewer new tricks, and known negatives undermine hope.
So with history against Hillary, I’m looking toward a great 2016 market–and increased 2017 risk.