Best of the Week
Most Popular
1. US Housing Market House Prices Bull Market Trend Current State - Nadeem_Walayat
2.Gold and Silver End of Week Technical, CoT and Fundamental Status - Gary_Tanashian
3.Stock Market Dow Trend Forecast - April Update - Nadeem_Walayat
4.When Will the Stock Market’s Rally Stop? - Troy_Bombardia
5.Russia and China Intend to Drain the West of Its Gold - MoneyMetals
6.BAIDU (BIDU) - Top 10 Artificial Intelligence Stocks Investing To Profit from AI Mega-trend - Nadeem_Walayat
7.Stop Feeding the Chinese Empire - ‘Belt and Road’ Trojan Horse - Richard_Mills
8.Stock Market US China Trade War Panic! Trend Forecast May 2019 Update - Nadeem_Walayat
9.US China Trade Impasse Threatens US Lithium, Rare Earth Imports - Richard_Mills
10.How to Invest in AI Stocks to Profit from the Machine Intelligence Mega-trend - Nadeem_Walayat
Last 7 days
IBM - Investing in AI Machine Intelligence Stocks - 25th May 19
Seasonal Dysfunction: Why Generations of Gold and Silver Investors Are Having Such Difficulty - 25th May 19
Employment - The Good and the Bad of Job Automation - 25th May 19
Gold Mining Mid-Tier Stocks Fundamentals - 25th May 19
Buy This Pick-and-Shovel 5G Stock Before It Takes Off - 25th May 19
China Hang Seng Stocks Index Collapses and Commodities - 24th May 19
Costco Corp. (COST): Finding Opportunity in Five Minutes or Less - 24th May 19
How Free Bets Have Impacted the Online Casino Industry - 24th May 19
This Ultimate Formula Will Help You Avoid Dividend Cutting Stocks - 24th May 19
Benefits of a Lottery Online Account - 24th May 19
Technical Analyst: Gold Price Weakness Should Be Short Term - 24th May 19
Silver Price Looking Weaker than Gold - 24th May 19
Nigel Farage's Brexit Party EU Elections Seats Results Forecast - 24th May 19
Powerful Signal from Gold GDX - 24th May 19
Eye Opening Currency Charts – Why Precious Metals Are Falling - 23rd May 19
Netflix Has 175 Days Left to Pull Off a Miracle… or It’s All Over - 23rd May 19
Capitalism Works, Ravenous Capitalism Doesn’t - 23rd May 19
The Euro Is Bidding Its Time: A Reversal at Hand? - 23rd May 19
Gold Demand Rose 7% in Q1 2019. A Launching Pad Higher for Gold? - 23rd May 19
Global Economic Tensions Translate Into Oil Price Volatility - 22nd May 19
The Coming Pension Crisis Is So Big That It’s a Problem for Everyone - 22nd May 19
Crude Oil, Hot Stocks, and Currencies – Markets III - 22nd May 19
The No.1 Energy Stock for 2019 - 22nd May 19
Brexit Party and Lib-Dems Pull Further Away from Labour and Tories in Latest Opinion Polls - 22nd May 19
The Deep State vs Donald Trump - US vs Them Part 2 - 21st May 19
Deep State & Financial Powers Worry about Alternative Currencies - 21st May 19
Gold’s Exciting Boredom - 21st May 19
Trade War Fears Again, Will Stocks Resume the Downtrend? - 21st May 19
Buffett Mistake Costs Him $4.3 Billion This Year—Here’s What Every Investor Can Learn from It - 21st May 19
Dow Stock Market Trend Forecast 2019 May Update - Video - 20th May 19
A Brief History of Financial Entropy - 20th May 19
Gold, MMT, Fiat Money Inflation In France - 20th May 19
WAR - Us versus Them Narrative - 20th May 19
US - Iran War Safe-haven Reasons to Own Gold - 20th May 19
How long does Google have to reference a website? - 20th May 19
Tory Leadership Contest - Will Michael Gove Stab Boris Johnson in the Back Again? - 19th May 19
Stock Market Counter-trend Rally - 19th May 19
Will Stock Market “Sell in May, Go Away” Lead to a Correction… or a Crash? - 19th May 19
US vs. Global Stocks Sector Rotation – What Next? Part 1 - 19th May 19
BrExit Party EarthQuake Could Win it 150 MP's at Next UK General Election! - 18th May 19
Dow Stock Market Trend Forecast 2019 May Update - 18th May 19
US Economy to Die a Traditional Death… Inflation Is Going to Move Higher - 18th May 19
Trump’s Trade War Is Good for These 3 Dividend Stocks - 18th May 19
GDX Gold Mining Stocks Fundamentals Update - 17th May 19
Stock Markets Rally Hard – Is The Volatility Move Over? - 17th May 19
The Use of Technical Analysis for Forex Traders - 17th May 19
Brexit Party Set to Storm EU Parliament Elections - Seats Forecast - 17th May 19
Is the Trade War a Catalyst for Gold? - 17th May 19
This Is a Recession Indicator No One Is Talking About—and It’s Flashing Red - 17th May 19
War! Good or Bad for Stocks? - 17th May 19
How Many Seats Will Brexit Party Win - EU Parliament Elections Forecast 2019 - 16th May 19

Market Oracle FREE Newsletter

U.S. House Prices Analysis and Trend Forecast 2019 to 2021

U.S. Elections and Performance of Stocks, Dollar and Economy

Politics / Financial Markets Nov 03, 2008 - 07:20 PM GMT

By: Ashraf_Laidi

Politics Diamond Rated - Best Financial Markets Analysis ArticleMuch has been written about the relationship between the partisan power in the White House and the performance of the stock market. Considerable amount of statistical exercise was undertaken in dissecting any the correlations and causalities involving partisan control of Congress, mid-term elections, balance of power between White House and Congress, and the impact of double term presidencies. The table below shows the performance of the dollar index, S&P500 and the general state of the US economy since the dollar became freely floated in 1971.

Here are some of the conclusions drawn from the patterns observed over the past 38 years.

Dollar Performance

Out of the 38 years analyzed, there were 19 years of negative dollar performance versus 19 years of positive performance. 7 of the 19 negative years occurred when the White House and Congress were of the same party. And in all but 2 of the 19 negative dollar years, the dollar declines occurred in series of at least 2 consecutive years. 1990 and 1998 were the only negative dollar years were the decline was preceded and followed by an increase in the currency. The 1990 dollar decline occurred due to the recession caused by the Savings & Loans Crisis and soaring oil prices resulting from Iraqs invasion of Kuwait. The subsequent Fed rate cuts dragged the dollar across the board as did flight to safety.

The 1998 dollar decline emerged from sharp unwinding of yen carry trades away from the dollar in the midst of a liquidity crisis in capital markets in the aftermath of collapse of Long Term Capital Management. Similarly, all but 1 of the 19 years of dollar gains occurred in at string of at least 2 consecutive years.

2005 was the only year during 1971-2008 delivering stand-alone rising performance, as a result of Feds interest rate hikes as well as the temporary reduction of taxes on U.S. multinationals repatriated profits. Such a pattern reflects the notion that foreign exchange rates move in trends, particularly a widely traded currency such as the dollar. As fundamental dynamics are built up and are accentuated by portfolio shifts, traders flows and speculative sentiment, the trend grows increasingly established.

The impact of U.S. presidential and mid-term elections on currency markets was especially prominent during the controversial 2000 presidential elections and the 2006 mid term elections. In November 2000, the already tumbling euro sustained a severe blow against the dollar at the announcement of a victory for President George W. Bush. The dollar rally emerged on the tax-cutting agenda by Republicans, which was a boon for the markets, especially after a series of tax hikes from former president Bill Clinton. Inaccurate media reporting of the 2000 election announcements erroneously declaring candidate Al Gore the winner prompted sharp but short-lived declines in the U.S. dollar. Republicans' full loss of power of the Senate and the House of Representatives in the 2006 mid-term elections sped up an already deepening sell-off in the US currency.

Stock Market

Out of the 10 years of negative stocks performance, 7 occurred during a Republican-controlled White House versus 3 under Democrat control. Of the 28 years of positive stock performance, 19 occurred during bi-partisan control between the White House and Congress. Regarding the relationship between the dollar and stocks, 7 out of the 10 negative years for stocks coincided with negative years for the dollar when 2008 is included.

Fundamentally, the relationship between stocks and the dollar had been prominently positive during the early 1980s and the second half of the 1990s. In the early 1980s, the Fed's staunch anti-inflation war under the command of Paul Volcker boosted interest rates towards 20%, rendering the dollar an attractive return on foreign investors funds, while stocks recovered as inflation was dampened and oil prices retreated. In the second part of the 1990s, U.S. equities attracted persistent growth in foreign capital flows while European economies were floundered in stuttering recoveries and Japan remained in a deflationary spiral.


The criteria used to determine whether the economy fell in a recession in a given year is the number of quarters showing negative GDP growth. 1973, 1974, 1980, 1981, 1982 and 2001 each showed two quarters of negative growth, regardless of whether these were consecutive quarters. Although the economic reports are increasingly pointing to a recession in 2008, at the time of writing the official body in charge of declaring U.S. recessions has not yet done so.

The National Bureau of Economic Research usually announces recessions about 2 our 3 quarters after they start. Due to this formality, 2008 is excluded from the recession count, leaving us with 8 recessions between 1971 and 2007. 1990 and 2000 were also recession years even though they had only one negative quarter. 6 of the 8 recessions occurred under a Republican Administration versus 2 occurring under the Democrats in 1980 and 2000. Regarding the sharing of power between Congress and the White House, 7 of the 8 recessions took place during a bipartisan split (1973, 1974, 1980, 1981, 1982, 1990) while 1 occurred in 1980 during dual control of the Democrats.

Dollar To Refocus on Economics

It has been widely stated that the financial markets main concern related to the election was the potential for adverse tax consequences from a Democrat-controlled White House, whereby the prevailing tax cuts will not be renewed after their 2010 expiration. Nonetheless, the risk of a Democrat victory for the market is diminished by heightened certainty that the Democrats will take control of the White House, thereby, ridding markets of the risk of the unknown. And with the US economy already mired in a recession and markets posting their biggest year-to-date decline in history, the role of politics in shoring up the economy is becoming less relevant, especially with the fiscal deficit expected to surpass the $800 billion market in 2009 regardless of politics.

The fiscal imbalance is expected to breach the 7% of GDP figure regardless of whether the Bush tax cuts are phased out, or a new stimulus packaged is announced. By mid end of Q2 2009, the dollar's main preoccuaption will revert towards the structural imbalances of the currency. And like 2005, 2008 may prove to show a lone positive year.

For more on the political and economic factors shaping the dollar over the last 38 years , see Chapter 9 "Selected Topics in Foreign Exchange" of my upcoming book "Currency Trading & Intermarket Analysis" - Wiley Trading.

By Ashraf Laidi
CMC Markets NA

Ashraf Laidi is the Chief FX Analyst at CMC Markets NA. This publication is intended to be used for information purposes only and does not constitute investment advice. CMC Markets (US) LLC is registered as a Futures Commission Merchant with the Commodity Futures Trading Commission and is a member of the National Futures Association.

Ashraf Laidi Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules