Economist: Market Performance Predicts Election Outcomes

Friday, 30 Jul 2010 | 5:57 PM ET

History shows that the S&P 500's performance during the three calendar months leading up to the presidential election have been a good predictor of whether the president or his party are re-elected.

If the market rises, there is a greater chance that the party in office gets re-elected. If the market falls, there is a greater likelihood that the party in power will be removed.

In presidential election years from 1928 through 2008, the markets have been right 79 percent of the time when it comes to predicting the re-election of the party in power, and right a whopping 86 percent of the time in calling for a change of party.

History also says this quarter and last quarter are historically the two weakest of a presidential cycle. Q4 of this year and Q1 and Q2 of next year are the three strongest.

So what does it all mean for your portfolio? Sam Stovall, chief investment strategist at Standard & Poor's, has crunched the numbers and has the scoop on what the market's predictive powers mean for your money.

Watch the video to see what Stovall has to say:

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