The Bear Market Blog

By Ken Knight, MBA

I'm back.  It's been quite a week politically and with more to come!  According to the Gallup Polls, Hillary Clinton was the most admired woman in the world for 20 times including this past year!      Donald Trump was seen as an astute business man who was well respected.  He was rated number 3 on last year's list- Posted December 6, 2015. (Gallup):

 

Now they are vilified as liars and very dishonest!  Their approval ratings are both below 45% (Huffington Post).  These are the lowest numbers in recorded history for presidential hopefuls.   So what happened?  Yes I know that a lot of facts have come out that helped change peoples minds.  But the rancor and vitriol tell me that there is a deep underlying tone - the change in social mood that has brought out the worst in everyone.
I previously listed differences in attitudes between the "good" and "bad" times.  we certainly aren't in the "good" category!
Here's what I posted in my first blog:

Positive mood                                Negative mood

Acceptance                                    rejection
Adventurousness                          protectionism
Agreeableness                               antagonism
Allowance                                       restriction         
Centrism                                         radicalism
Certainty                                         uncertainty
Ebullience                                       depression
Forbearance                                   anger
Happiness                                       unhappiness    
Security                                            fear
Trust                                                suspicion

So why Trump [and Sanders]?  Why now?(Socionomics.com)  Well in times of negative mood, political correctness goes out the window!  Also, negative mood means anger and fear, both very much seen as the mainstays of their campaigns.  The pundits, who initially thought that both candidates were a joke, did not understand how polarized the country had become. Negative mood, as seen above influences the "herd" and can cause havoc with politics.  

And that is just the presidential race!  We'll be seeing individual senate and house races heat up in the next 99 days.  

Interestingly, one might ask "can the stock market predict a presidential winner?"  The answer is yes and no.  An important study was done to see if it is possible.(Socionomics.com)  Here's what I found.  It is actually possible to predict the outcome of an INCUMBENT President by what the stock market was doing.  In other words, if the stock market was in a bull market, the president was most likely to be re-elected (by a landslide).  The opposite is also true. The chart below shows the history of presidents and whether they were re-elected or not based on whether the stock market was in a bull or bear market.  The numbers represent bull market winners and the letters show bear market losers:

The only one that I can see didn't follow the pattern is George Bush senior.  Nothing's perfect.  What is not shown, because the study was done before Obama's second presidential run, is that he would most likely be re-elected to a second term because of the stock market rally:

But, regretfully, the study also showed that it is NOT possible to predict the winner if the candidates are not running for re-election!  Other studies, including the state of the economy, inflation, and unemployment rate and have also been unable to predict the winner.  I guess we'll just have to wait and see!

So the reason my first prediction of the winner of this election would not be re-elected, is because if most likely the stock market enters a severe downturn, the incumbent president will NOT be re-elected!

So don't boo, vote!

Best regards,
Ken Knight