2012 isn't just a US election year—globally it's an active election year. Here, we take a look at some key upcoming elections.
A Political Sweet Spot
One thing's certain about the US's 2012 political landscape: With elections in the offing, rhetoric will be fast and furious—it already has been, and the year's still young. But talk is one thing—action is another.
And legislative action is something you get less of in the back half of presidents' terms. Why? Presidents typically lose relative power in mid-terms, which typically leads to a more gridlocked Congress. The risk of legislated redistribution of money (property rights, regulation) is lower; hence, legislative risk aversion is diminished, helping ease risk aversion overall—which is one reason stocks on average are more uniformly positive in years three and four with better than average returns.
Another interesting historical precedent—the US hits a particular sweet spot this year. Of the four possible election outcomes (outlined in Exhibit 1), market returns in years we either re-elect a Democrat or newly elect a Republican are historically stronger than in the other scenarios. And like it or not, it's guaranteed we do one of those two things this year.
Exhibit 1: Election Versus Re-Election—Average S&P 500 Returns
Source: Global Financial Data, Inc., S&P 500 total return as of 12/31/2011.
Does any of this guarantee an up year in the markets? Not necessarily—there's always the possibility something unexpected derails markets. But it's one more reason (on a fairly long list) we think markets likely have a strong 2012.
Putin Up a Front
Protests swept through Moscow this week as Russia inches closer to its March 4 presidential election. Anti-Putin protesters accused (probably with decent reason) the former president and current prime minister of masterminding election fraud and vote-rigging in December's parliamentary elections. However, the protests weren't all one-sided. Pro-Putin protestors, allegedly arranged by his United Russia party, also took to the streets. Both groups reported they had the larger show of force (and therefore popular opinion). However, absent a legitimate challenger to Putin (a tall order, for myriad reasons), it's likely the status quo remains—meaning Putin's return to the presidency in March.