Heading into Tuesday, most pundits predicted that the presidential election was going to be painfully close. Many used terms such as “razor-thin,” “among the closest in our nation’s history” and “it’s going to be a late night—maybe several nights—before we have a victor.”
But one study released in January had a different view. The study has received extensive press coverage and is among the most-downloaded papers at the popular research site SSRN.com. It showed that the nation’s mood heading into Tuesday’s election favored a decisive win for incumbent Barack Obama.
The study arrived at its conclusion by researching every presidential re-election campaign in U.S. history back to George Washington’s successful bid of 1792. The authors found that incumbents who served during periods of rising stock prices typically do better in subsequent elections than those who served during periods of falling stock prices. According to the study, social mood as measured by the stock market is a better predictor of presidential re-election bids than the hard economic realities of GDP, inflation and the unemployment rate.
Moreover, a large positive stock market move in the three years prior to the election “is highly likely to be associated with a landslide victory for the incumbent,” the authors wrote. During the past three years, stocks have gained 34.8%, and some in the media are calling Obama’s Electoral College victory a landslide. “It’s certainly bigger than most poll-watchers expected,” said Deepak Goel, the paper’s statistician.
“Social Mood, Stock Market Performance and U.S. Presidential Elections,” by Robert Prechter and Deepak Goel of the Socionomics Institute, Wayne Parker of Emory University and Matthew Lampert of the University of Cambridge and the Socionomics Institute, amounted to a bold challenge to conventional wisdom regarding what factors predict presidential re-election outcomes. “The best single predictor of presidential re-election results that we found was the percentage change in the stock market during the three years that preceded Election Day,” said Goel. “GDP is rendered insignificant when combined with the stock market, and unemployment and inflation had no predictive value in any of our tests.”
Even more dramatically, the results did not hinge on whether or not people ever actually owned or traded any stocks. It doesn’t matter whether voters are part of the 1% or the 99% — underlying social mood, as measured by the stock market, foreshadows which candidate wins the most votes, NOT, as we’re constantly told, “the economy, stupid.”