Is Obama Bullish or Bearish for Stocks?

Continuing our theme on contrarian investing, today we're going to talk about the Obama Effect on the stock market. President Obama is not, shall we say, the most "business friendly" president in recent decades. If taken at face value, some of what he says about business regulation and the role of government is downright scary. Perversely, this might actually be good for the stock market.
In general, we tend to ignore market anomalies as statistical noise. To use Nassim Nicholas Taleb's words, we want to avoid being "Fooled by Randomness." That said, consider these little facts from Ken Fisher's last article in Forbes ("The Obama Effect" ):Here are the stats: S&P 500 returns (including dividends) for the first year of first terms for Presidents fit a neat pattern. Since 1926 five of six Republican first years have been negative, the lone exception being 1989 under George H.W. Bush (when the market was up 32%). Of six Democratic first years, five show double-digit gains, the lone exception being 1977, under Jimmy Carter (off 7%).This seems completely counterintuitive, of course. Why would the market perform better under administrations that, in some cases, have been hostile to investors? As Fisher continues,The pattern is not so strange when you think about what the market is and is not. It is not a register of current business conditions. It is an anticipator. Anticipating the worst from a populist presidential candidate, Wall Street marks down stocks before a Democrat takes office -- before, in fact, he is even elected. After the inauguration there's a good chance for a rebound.We think Fisher is on to something here. We strongly believe that many of the actions taken by the Obama Administration will have serious negative consequences for the U.S. economy in the years ahead. The management of the Chrysler and General Motors bankruptcies, for example, have raised serious doubts about the sanctity of contract law. This makes the United States less attractive as a place to do business, and we will pay a price for this in the future. But for now, we believe it is highly likely that we could continue to enjoy a good run in the stock market.
Charles Lewis Sizemore, CFA
www.charlessizemore.com

Check out Charles's new book, available on Amazon.com: Boom or Bust: Understanding and Profiting from a Changing Consumer Economy

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