Thursday, November 8, 9:25 a.m.
(By Sy Harding) Some things I don't mind being wrong about, and I was wrong in my blog post Tuesday that the election would be so close that an additional uncertainty would likely be added by a Bush-Gore 2000 type tie that would take weeks to resolve and decide who will be president for the next four years.
That did not happen. The election was not near as close as the polls had it.
Based strictly on our interest in investing and market-timing, and none of the other considerations that go into voting decisions and party politics, it would seem that the outcome of the election was probably bad news for Wall Street and potentially good news for investors.
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Wall Street firms and the big banks had already succeeded in watering down rules proposed by regulatory agencies to protect investors and the economy from another bank-induced financial crisis. But President Obama's re-election probably dashes their hopes of going further toward having those proposed regulatory changes completely scrapped.
And for individual investors that means they should have some protections from Wall Street abuses that they didn't have before.
And for investors it is also true that historically the stock market has performed much better when a Democrat has been in the White House. A year ago, we researched market performance in each presidential term of the last 50 years. It showed the market (Dow) experienced double the return when a Democrat was in the White House.
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It has become a popular topic in recent weeks elsewhere, with numerous studies confirming what we found, although the percentages seem to vary.
From Bloomberg News: A 61-year study: "The annualized return for 23 years of Democratic administrations is 11 percent, or four times the 2.7 percent annualized return during 28 years of Republican presidencies."
From S&P Capital IQ, a 91-year study:
We found it interesting to break it down into each individual president's term, but the results were similar. This is the 50-year table from our previous research, updated to add this year (so far).
* To the close Nov. 7, 2012.
Over the six Democratic terms the Dow gained 255.8%, or an average of 42.6% per term.
Over the seven Republican terms the Dow gained 147.1%, or an average of 21.0% per term.
That was the result at the end of each term. However, getting there each time was not as smooth going as the table would indicate.
No administration was able to repeal the centuries-old cycles between recessions and good times, or bull and bear markets.
The table does not reveal some of those times when the bottom dropped out of the market within presidential terms before recovering. For instance, there was the 35% plunge in the 1969-70 bear market, 27% in the 1976-77 bear market, 24% in the 1981-1982 bear market, the 35% plunge in the 1987 bear market and crash, the 21% decline in the 1990 bear market, and the 50% plunges by the Dow or S&P 500 in the 1973-74, 2000-2002, and 2008-2009 bear markets.
So rallies and corrections, bull and bear markets, and volatility, continued in most of the terms. The difference in performance seems to be that bear markets tended to be somewhat more frequent and severe when Republicans were in the White House.
So, now we know the results of the election, and it's back to the remaining uncertainties, and our use of a combination of technical, fundamental, and seasonal analysis that provides the signals in our two long-time proven strategies.
Re-Entry Signal For Our Seasonal Timing Strategy Still Not Triggered.
The re-entry rule for our Seasonal Timing Strategy (STS), which combines a calendar date for annual seasonality with a short-term technical indicator, is that the earliest calendar date for a re-entry is October 16. But if short-term MACD is on a sell signal when that date arrives the re-entry is delayed until short-term MACD triggers its next buy signal.
And that has been the situation this year, with short-term MACD on a sell signal from mid-September when October 16 arrived, and still on that sell signal.
However, MACD has flattened out, potentially building a base for a new buy signal.
Meanwhile, our non-seasonal Market-Timing Strategy also remains on a sell signal, with the S&P 500 breaking beneath its 20-week m.a. for the first time since the June rally began, and we continue to hold downside positioning in ‘inverse' etf's against the market.
But there is potential hope in the short-term charts where an upside reversal would show up first. Some of the 35 technical indicators that make up the consensus for our signals are nearing oversold levels, and some, like short-term MACD, although not yet at oversold levels seen at previous market lows, have flattened out, at least at the moment.
So, still on a sell signal with downside positioning in inverse etf's, but watching closely.
Betting On Election Stocks Was Mostly A Losing Proposition Again.
One of the most frequent requests we received over recent months was for recommendations of what stocks or sectors to buy in anticipation of Romney winning the election (at the times when he was leading in the polls), or if Obama wins (at the times when he was leading in the polls). That's a type of game we don't play as it's more of a guessing game, the stock prices seeming to change with the polls, but more importantly doesn't lend itself to normal investment strategies or technical analysis.
But for months touts have been handing out advice on which stocks investors should load up on based on the likely election results.
Coal producers were highly recommended as winners on the comments from the National Mining Association and others that the EPA under Obama has had a virtual moratorium on issuing new coal-mining permits, while pushing development of alternatives to fossil fuels, and the coal producers would perform better under a Romney presidency.
So in yesterday's aftermath to the election, Peabody Energy Corp (BTU), plunged 9.9%, James Rover Coal (JRCC) plunged 24% and Arch Coal (ACI) declined 14%.
Defense-related stocks, also touted to be big Romney winners, based on his promise to increase defense department spending, also experienced large losses. Raytheon (RTN) fell 4.7%, Lockheed Martin (LMT) fell 5.2%, General Dynamics (GD) 4.1%.
On the winning side, as when Obama won in 2008, were the gun manufacturers, reportedly on concerns that his Administration will go after tighter gun controls, although that expectation was wrong in his first term. Smith & Wesson Holdings surged up 8.7% yesterday, while Sturm Ruger gained 8.2%.
Market action around election day four years ago was wild.
The Dow closed up 133 points on election day, and back down 312 points yesterday, the day after.
A walk in the park compared to the volatility at the election in 2008 when Barack Obama was elected to his first term.
On election day, Tuesday, 2008 the Dow surged up 305 points, or 3.3% from the previous day's close at 9,319. It then plunged 486 points Wednesday, the day after the election. Then down another 443 points the next day.
But on Friday of that election week it closed up 248 points. But then declined 73 points the following Monday, down 176 on Tuesday, and down 411 points on Wednesday. Then back up 552 points on Thursday, only to plunge 561 points over the next two days.
So the volatility of the last two days, up 133 points on election day, down 312 points yesterday, was nothing by comparison.
But conditions were entirely different at the election in November, 2008. The 2007-2009 financial crisis was underway, the economy was in the worst recession since the Great Depression, a recession that would not bottom until June, 2009, and after several more big stimulus efforts. And the stock market was in a severe bear market, the Dow already down 30% from its 2007 peak.
But at this election the economy is still in recovery mode since the recession ended in June, 2009, although an anemic recovery. And the stock market is recovered almost all the way back to its level at the 2007 peak.
So hopefully, we will see a more stable trend in whatever is the market's next direction, and not a repeat of the heart-stopping day-to-day volatility that surrounded the last election, and prompts investors to jump in or out in reaction.
To read my weekend newspaper column click here: Investors Are Not Dumb!
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Yesterday in the U.S. Market.
The U.S. market plunged sharply right out of the gate yesterday.
The Dow closed down 312 points, at 12,932, under 13,000 for the first time since August 2.
Volume was quite heavy by recent standards, with 0.9 billion shares traded on the NYSE.
The Dow closed down 312 points, or 2.4%. The S&P 500 closed down 2.4%.The NYSE Composite closed down 2.1%. The Nasdaq closed down 2.5%. The Nasdaq 100 closed down 2.6%. The Russell 2000 closed down 2.6%. The DJ Transportation Avg. closed down 1.9%. The DJ Utilities Avg closed down 2.2%.
Gold closed up $1 an ounce to $1,717.
Oil plunged $4.02 a barrel, 4.0%, to $84.69 a barrel.
The U.S. dollar etf UUP closed up 0.2%.
The U.S. Treasury bond etf TLT closed up 1.8%.
Yesterday in European Markets.
European markets were also down sharply yesterday. The London FTSE closed down 1.6%. The German DAX closed down 2.0%. France's CAC closed down 2.0%. Greece closed down 0.8%. Ireland closed down 1.4%. Italy closed down 2.5%. Spain closed down 2.3%. Russia closed down 1.0%.
Asian markets plunged last night.
The Asia Dow closed down 1.5%.
Among individual markets:
Australia closed down 0.7%. China closed down 1.9%. Hong Kong closed down 2.4%. India closed down 0.3%. Indonesia closed down 0.6%. Japan closed down 1.5%. Malaysia closed down 0.3%. New Zealand closed up 0.3%. South Korea closed down 1.2%. Singapore closed down 1.0%. Taiwan closed down 0.6%. Thailand closed down 0.5%.
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Markets This Morning:
European markets have given up earlier gains and are bouncing back very fractionally from yesterday's big declines. The London FTSE is up 0.1%. The German DAX is up 0.1%. France's CAC is up 0.2%. Spain is up 0.2%.
Oil is up $.37 a barrel at $84.81.
Gold is down $3 an ounce at $1,714.
This Morning in the U.S. Market:
This week is a very light week for potential market-moving economic reports, the ISM non- Mfg Index, Unemployment Claims, the U.S. Trade Deficit, Consumer Confidence, and little else. To see the full list click here, and look at the left side of the page it takes you to.
Monday's report was the ISM non-mfg Index, which fell from 55.1 in September to 54.2 in October.
There are no reports of consequence Tuesday or Wednesday.
This morning's reports were that new weekly unemployment claims fell by 8,000 last week to 355,000. The four-week moving average rose by 3,250 to 370,500. And that the U.S. Trade deficit narrowed in September to $41.5 billion, significantly better than the consensus forecast of $45.1 billion, as a result of exports rising faster than imports.
In the background, European Central Bank President Mario Draghi issued a downbeat outlook on the euro-zone economy, saying that risks remain weighted to the downside.
The market right now seems to be all about guessing what effect the re-election of President Obama will have on the economy and business, and how markets will react.
Our Pre-Open Indicators:
Our pre-open indicators are pointing to the Dow being up 10 points or so down in the early going this morning, not meaningful as to direction.