Stocks could be an indicator for presidential re-elections

NEW YORK -- The number has been repeated so often by presidential prognosticators that it's an article of faith: No president has been re-elected since World War II with an unemployment rate higher than 7.2 percent.

But the stock market turns out to be a pretty good predictor, too.

The Dow Jones industrial average has soared 62 percent since President Barack Obama took the oath of office during some of the darkest days of the recession. The Dow was just below 8,000 then and stands near 13,000 today.

If a recent study of stock markets and presidential elections is any guide, Obama can start preparing his second inaugural address.

"There's something to this," said Phil Orlando, chief equity market strategist at Federated Investors, the $370 billion investment firm.

There are plenty of other signs often consulted for their political forecasting power, like whether a team from the National Football Conference or the American Football Conference wins the Super Bowl.

This one makes a little more sense: When the economy picks up and unemployment falls, investors put money into riskier investments and stocks rise. Voters are likely to reward the sitting president with another four years.

"The stock market reflects trends in the economy," Orlando said.

The study was backed by the Socionomics Institute, a think tank studying how a shared mood among a group sways its members' actions. Their researchers dug up data on economic output, prices, unemployment and stock-market performance and matched them to presidential elections.

They went all the way back to the first re-election in 1792, when George Washington beat John Adams.

However, Doug Wead, a presidential historian who served in the elder Bush's administration, said the stock market theory sounds suspect.

"The stock market isn't even a good indicator of the economy," he said. "You can have the stock market going up while the rich get richer and the poor get poorer."

There's also the danger of oversimplifying -- relying on one number, in this case the Dow's performance, while ignoring everything from scandals and wars to third-party candidates.

In William Howard Taft's last three years in office, the Dow lost 12 percent, and Taft lost the 1912 election to Woodrow Wilson. But if Theodore Roosevelt hadn't split from the Republicans and run under the Progressive Party banner against Taft that year, Taft might have returned to office.

It was a similar story with the first President Bush in 1992. The independent candidate Ross Perot siphoned off votes from both candidates, but historians generally believe more came from Bush's Republican camp. Clinton won with just 43 percent of the popular vote.

The economy also slipped into a recession during Bush's second year in office, and as he campaigned for re-election, the unemployment rate hovered well above the dreaded 7.2 percent mark.

Orlando, of Federated Investors, says a change in any single statistic won't guarantee a president gets re-elected. Analysts should consult a range of figures. One that looks less reassuring for Obama is his approval rating, he says.

No president has been re-elected with a Gallup approval rating below 48 percent approaching Election Day. Obama's numbers are improving, and the election is more than eight months away, but for now he's teetering on the edge -- 48 percent.