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Oct.29

3:42 PM ET

Wednesday, 29 Oct 2008

Can the Dow Predict Presidential Election Results?

Posted By:Ariel Nelson | Giovanny Moreano

Topics:Sarah Palin | John McCain | Stock Market

Companies:Nabors Industries Ltd | Legg Mason Inc | CIT Group Inc | Consol Energy Inc | AutoNation Inc

With less than a week before the Presidential Election, the candidates are rushing to key battleground states to convince voters of their economic plans to deal with the financial crisis. But will it help? History shows things may not be too hopeful for John McCain. For five of the six Presidential Elections during periods of significant market down swings, the incumbent party lost control of the oval office.

That's not stopping the candidates from trying. The race in Pennsylvania, for example, has intensified in the last week as both presidential nominees compete for the state's 21 electoral votes. Senator Obama held a rally yesterday in Chester, Pennsylvania, while Senator McCain had to cancel his appearance in Quakertown due to weather problems.

Both presidential candidates will focus on Florida today. Senator Obama will also air a 30-minute infomercial tonight at 8:00pm EST on all major networks, including NBC, the parent company of CNBC. Senator Obama will also appear on the Daily Show tonight, while Senator McCain will join Larry King for a live interview.

The latest estimates from Pollster.com show Sen. Obama with a strong lead of 149 electoral votes over Sen. McCain, and 85 electoral votes still on the line.

Source: Pollster.com

But all the hard work may come down to the simple question of "how's the economy?" There have been 6 Presidential Election Days during periods of significant market down swings (7 if you count the period in 1900 just before William McKinley's reelection). For five of the six, the incumbent party lost control of the oval office.

The Dow has only been in negative territory for the full 12 months leading up to the election 5 times. Three times, the oval office switched parties.

In 1920, the Dow was down 28% for the 12 months going into the election when Republican Warren Harding was elected (Beginning of Prohibition) his predecessor was Democrat Woodrow Wilson
In 1932, the Dow was down 43% for the 12 months going into the election when Democrat FDR was elected (the Great Depression), his predecessor was Republican Herbert Hoover
In 1960, the Dow was down 8% for the 12 months going into the election when Democrat JFK was elected, his predecessor was Republican Dwight Eisenhower

If this pattern plays out, John McCain should hope for another big rally in the markets over the next few days while Barack Obama would prefer the recovery to begin later next week. Right now the markets are up for the day. The top five companies leading the S&P 500 today are: