NEW YORK – With 1.400 points, the S & P 500 on Friday flirted with its highest gains in four years, an increase of 74% since January 20, 2009, the day Obama took office. Not since Dwight Eisenhower’s first term in the White House has any president achieved such an impressive feat.
This rally could be strong enough for Obama to achieve re-election, making him the first president after the war to win a second term despite an unemployment rate above 7.2%.
“Although the corporate and business sentiment is not in tune with Obama because they think it is not good for the economy, the fact that the market has done well under his leadership is something positive,” said Ethan Siegal, director of the Washington Exchange, which analyzes the politics behind institutional investing.
Shortly after taking office, the president even ventured into the dangerous territory of the stock market forecasts.
On March 3, 2009, Obama, responding to a query about a market that was on 12-year lows, said: “What we are seeing is that profits and earnings ratios are starting to get to the point where buying stocks is potentially a good decision, if you have a long-term perspective on them. ”
The S & P 500 reached a record low a week later. Three years later, U.S. stocks more than doubled in value, adding 6.8 trillion dollars in market capitalization.
“The stock market is not a barometer of the absolute level of the economy but rather of the improvement in the economy,” said Richard Bernstein, former Merrill Lynch strategist who now runs his own investment company. “There is no doubt that the economy has improved over the last four years,” he said.
According to popular belief, a stock market recovery is good news for any president in office. And often, that trend has been confirmed.
But not all improvements are equal, and the lack of a concurrent rise in house prices, coupled with a weak market works could mean that the gains in the last three years does not give the same benefits to Obama.
No effect of wealth
Polls in recent days have shown Obama extending his lead over Republican candidate Mitt Romney, even though voters say they are concerned about the economy and the country’s leadership. The latest Reuters / IPSOS gave the president a lead of seven points.
Bets will give Obama a chance to win. The online betting site Intrade shows the president’s reelection chances in 59% versus 38% for Romney.
A study this year of the Socioeconomics in Atlanta found that the performance of the Dow Jones Industrial Average in the three years prior to the election was a better estimate of results element that growth, unemployment or inflation.
A gain of 20% or more in the Dow ensures victory for the official force, while a drop of 10% or more means that the president should start reviewing their golf game.
That should be good news for Obama: the Dow rising by 35% since November 1, 2009. During the presidencies of Ronald Reagan and Bill Clinton, the index gained 25 and 35% respectively. Both won re-election smoothly.
“Research on annual price performance since 1994 show a relationship between stock market performance and factors such as the probability that the current president is reelected,” said Sam Stovall, chief investment strategist of Equity Research Services at Standard & Poor’s.
But in the 1990s, for example, stock prices rose amid an economic boom that drove job growth and housing prices, which made everyone feel richer.
This “wealth effect” was largely absent this time.
While low interest rates and cheap financing from the Federal Reserve have helped to raise the stock price, have not done much to soften the blow of the mortgage meltdown or encourage companies to hire staff.
Unemployment in July was 8.3%, the same percentage recorded just after Obama took office.
An economy with slow growth and nearly 13 million Americans out of work means that “nobody is euphoric just because we had a market recovery,” said Sean West, who heads the analysis section of the United States at The Eurasia Group, a consulting firm that analyzes political developments for companies and investors.
“Even if one is doing well right now, who knows where it will be in six months? In a volatile environment, it is hard to feel good,” he added.
Things do not always go as planned. It blamed a weak economy to thwart the reelection bid of George HW Bush in 1992, although the S & P rose 46% during his tenure. Increased a modest 4.46% in 1992.
