For investors trying to play the election game, the rules just got a lot more blurry. With less than two weeks before voters head to the polls, President Barack Obama and Republican challenger Mitt Romney are neck and neck, making it hard for investors to make their portfolio plays based on who will occupy the White House for the next four years.
Historically, Wall Street rises leading up to an election, according to Sam Stovall, chief equity strategist at S&P Capital IQ. He said that the economy, stock prices and corporate earnings post stronger growth during Democratic administrations compared with Republican ones. Since 1900, both parties have had six stretches of presidency with the S&P 500 rising a median 12.1% under a Democratic White House and 5.1% under the GOP.
“Since 1900 whenever the market rose from July 31 until Oct. 31 the incumbent was re-elected 80% of the time, when the market fell in that three-month period a new president was named 88% of the time,” Stovall said. He noted that Wall Street often rallies in November and December when an incumbent is re-elected, and if a new president takes office, stocks historically decline in November but rally in December for a net gain.