The Rising Stock Market Could Get Obama Reelected
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By Rodrigo Campos,
August 12, 2012

Barack Obama often gets slammed for his stewardship of the U.S. economy, but for stock investors, he's been one of the best presidents since World War Two.

At 1,400, the S&P 500 on Friday was closing in on a four-year high and was up 74 percent since January 20, 2009, the day Obama took office. Not since Dwight Eisenhower's first term has a president had such a strong run for their first term. That rally might be just enough to get Obama re-elected, making him the first sitting president in the post-war era to win a second term with a jobless rate higher than 7.2 percent.

"Even though business and corporate sentiment is not good for Obama because they don't think he's been good for the economy, the fact that the market has done very well under him is a positive," said Ethan Siegal, head of The Washington Exchange, which analyzes politics for institutional investors.

Soon after taking office, the president even waded into the dangerous territory of stock market prognostication. On March 3, 2009, Obama, responding to a question about a market that was plumbing 12-year lows, said, "What you're now seeing is profit and earning ratios are starting to get to the point where buying stocks is a potentially good deal, if you've got a long-term perspective on it."

The S&P 500 hit bottom a week later. Three years on, U.S. stocks have more than doubled, adding $6.8 trillion in market capitalization. "The stock market is a barometer not of the absolute level of the economy but of improvement in the economy," said former Merrill Lynch strategist Richard Bernstein, who now runs his own investment management firm. "There is no doubt the economy has improved in the last four years."

Conventional wisdom has it that a stock market rally is good news for a sitting president, and it often has been. But not all rallies are the same, and the lack of a concurrent boost in home values, along with the weak job market, may mean the gains over the last three years don't have the same benefit for Obama.

Tom Wales, director of North America analysis at Oxford Analytica, noted that most Americans who hold stocks do so in their 401(K) retirement accounts, and "if you're worried about your job, about your mortgage being underwater, then the fact that your 401(K) looks less bare is not that reassuring."

Polls in recent days have shown Obama widening his slim lead over Republican Mitt Romney even though voters say they are worried about the economy and the country's direction. The latest Reuters/IPSOS poll gives him a seven-point lead.

Betters give Obama a strong chance to win. Online betting site Intrade had the president's reelection chances at 59 percent, against 38 percent for Romney.

A 2012 study by the Socionomics Institute in Atlanta found that the performance of the Dow Jones Industrial Average in the three years preceding election day was a better predictor of results than overall growth, unemployment or inflation.

A gain of 20 percent or more in the Dow all but assured victory for an incumbent, while a fall of 10 percent or more meant the president should start brushing up on his golf game. That ought to be good news for Obama: the Dow is up 35 percent since November 1, 2009. Ronald Reagan and Bill Clinton presided over respective gains of 25 percent and 35 percent. Both coasted to reelection.