Stock Market, Economic Performance, And Presidential Elections

Abstract

Using stock market and economic data from 1900 to 2008 from 27 separate presidential administrations in the United States (U.S.), including 15 Republican and 12 Democratic, this paper examines the relationships between the market return after each Election Day and economic performance during the presidential term. Using the theoretical framework of political economy, the authors examine how Wall Street’s reaction to a presidential election acts as a predictive measure of future economic performance. The analysis shows that the after-election market movement has progressively been more accurate in predicting the future Gross Domestic Product (GDP) growth but not the future unemployment rates. Given that the results show a higher correlation over time, the model appears to provide a good starting point for judging the economic potential of future presidential administrations.