Thursday, 14 March 2013

Why The Obama win is good news for the Stockmarket in the long run

Just over 10 days since the US Elections and the US Dow Jones index has tumbled nearly 5% or 650 points so you may jump to the conclusion that four more years of Democrats are  bad news for the stock market but my data crunching shows in the long run the  US stock market favours the Democrats.

I crunched data going back to 1921 using the Dow Jones Industrial Average and found that the common view of Republicans are better for business and stocks did not hold true. In fact the average returns for the Dow Jones over the period when Dems where in power was 12.4% whereas under the Republicans it was only 6.9%

Many forget that when Obama took office the Dow was trading at 8800 against the recent 12600 that’s a near 43% gain even after the recent sell off. Under the last Republican president George Bush Junior (2005 to 2009) stocks were down 18%and in his first term they were flat. One of the best presidents for the stock market in recent years has been Bill Clinton (Democrats), in his first term markets soared 95% and followed on with 67% in in second term.

Of course history is a guide and not a guarantee of the future but the odds of the stock market being higher than it is today in four years are better than most expect so don’t get carried away by just looking at the last few weeks.

Of course as I write fiscal cliff is the hot topic but as Winston Churchill once said“You can always count on Americans to do the right thing, after they've tried everything else.”  Regardless of politics a compromise deal will be done before the deadline and this will most likely some sort of 12 month extension, as we approach the season of goodwill.  Overall my trading model remains bullish on US stocks and I look for a 6 to 7% up move in stocks between now and end of January 2013.

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