The opposite happens as well: Markets don't do poorly because the challenger is polling well; rather, the inverse of the good conditions above will help a presidential challenger -- declining corporate profits, rising unemployment, stagnant wages, falling consumer sentiment, lower retail spending. All these negatives for earnings and the markets are also negatives for incumbents. And all of it points to a natural desire for change.
Let's take this a step further: When you look at this error of confusing correlation with causation, then add a partisan narrative and the irrational lizard-brain thinking that goes with it, what you get is a story line that is all but guaranteed to be wrong. That is a good recipe for investing disaster.
Don’t expect to hear this kind of reasoning from the pundit class, maybe because it doesn't quite sell as well.
Inevitably, you will come across some expert who cites the movements during any single day as proof that the market likes their preferred candidate. It goes without saying that these same sages will ignore the next day’s market reversal. This kind of cherry-picking simply reveals their bias.
I don’t want to suggest that presidents are irrelevant to markets and the economy; their actions can and do affect interest rates, and commodity and equity prices. A well-designed stimulus can help blunt the harm of a recession, while policy blunders such as waging unnecessary wars as in Vietnam or Iraq can and will affect markets. But during the ordinary course of business, a president isn't usually an especially important market-moving agent.
As we have said before, you will do best by keeping politics out of your investment portfolio; save it for the voting booth!
This article was provided by Bloomberg News.