Here’s the money quote:
“The market may not get it precisely right all the time, but it gets it right often enough to warrant paying close attention to what it’s saying and why. If the economy slows, this gets reflected in the markets as lowered equity prices, often before the economic releases confirm it. Investors become less willing to pay more for slower growth, and that means weaker job growth. Invariably, this negatively impacts an incumbent’s re-election chances.
Is that too general for you? Then let’s get specific:
“Ned Davis Research did a recent study on post-World War II presidential campaigns and determined that while “job growth does not guarantee a victory, sluggish job growth historically has hurt the incumbent party.” According to the study’s data, the party in power lost the presidency whenever the change in nonfarm payrolls during the president’s term was below 5%. This isn’t a Republican or Democratic issue, but rather an incumbent vs. a challenger issue.
During the 1957-1960 period under Eisenhower, nonfarm payrolls grew at 2.4%, and the incumbent party lost. From 1989-1992, job growth was 1.8% and, again, the incumbent lost. In the present cycle, from 2001 to June 2004, job growth has been a negative 0.8%.
In light of these data, ask yourself: Are politics roiling the market, or are the economy and the market ailing the politicians? . . . While it may not always be “the economy, stupid,” incumbents who ignore economic data do so at their own peril.”