During the Democratic convention in August 2008, the stock market rose by 2.7 percent. During the Republican convention a week later, it fell by 3.6 percent. But if historical averages hold this year, it will be the other way around.
Not much actually happens at political conventions these days, since the candidates and their policy positions are usually determined long in advance. But Wall Street may be susceptible to the same feel-good messaging that political puppetmasters hope will impress voters during the conventions. So, Sam Stovall, chief equity strategist at S&P Capital IQ, crunched the numbers to figure out if the upcoming Republican and Democratic conventions might have any impact on the stock market.
The conventional wisdom, of course, is that Republican policies are more favorable to big business than those of Democrats, so stocks ought to perform better when Republicans are on the stage. Historically, the numbers reflect that. Since 1948, the S&P 500 stock index has enjoyed a median gain of 0.32 percent during Republican conventions, while suffering a median loss of 0.23 percent when Democrats gathered. In the week following the conventions, the stock market fell by 0.04 percent for Republicans and 0.34 percent for Democrats.
It's impossible to know whether events at the convention moved the markets, or stocks simply responded to other developments that occurred at the same time. But it's easier to predict what may happen during the second convention, typically held by the party that controls the White House. Stovall found that when the S&P 500 rose during the first convention on the calendar, it usually fell during the second convention. And when the GOP went first, the market rose six out of seven times during the convention.
So if stocks rise during the Republican convention--to be held August 27-30 in Tampa--the odds strongly suggest they'll fall when the Democrats gather in Charlotte from Sept. 3-6. That was the pattern in 2008, when the Democrats met first. Of course, there was a lot more going on at the time, such as an acceleration of the financial meltdown that culminated with the Lehman Brothers bankruptcy, which occurred a few days after the Republicans adjourned.
This fall ought to be a lot quieter, so rhetoric spouted during the conventions might be more directly associated with spurts or dips in the stock market. Still, investors may be more interested in other developments, such as the August jobs report, which is due out Sept. 7, the day after the Democrats wrap up in Charlotte. Wall Street will also be closely watching a Federal Reserve meeting scheduled for Sept. 12 and 13, to see if the Fed announces more monetary easing (or doesn't, which could be just as important). And important economic news could come out of Europe at any time.
The more important question for the candidates is how the stock market will perform in the last few weeks prior to the elections. With polls predicting an extremely tight race, a minor market rally could give President Barack Obama the edge, while a downturn could be just enough to sour voters on the president and give the nod to Republican challenger Mitt Romney.
The irony, however, is that markets don't do nearly as well under Republican presidents as investors may assume. Since World War II, the markets have performed significantly better when a Democrat was in the White House than when a Republican was. And stocks have rallied by about 66 percent since Obama took office. That buoyant stock-market performance during the 2008 Democratic convention turned out to be a sign of things to come.
Rick Newman is the author of Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.
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