Can McCain win in spite of the stock market crash?
Presidential elections are as complicated and nuanced as the stock market so trying to tie the two together is sometimes elusive. There is so much data and so many variables that one can almost prove any bias. There is one thing clear. Most markets are booming just before the election and most take a hit for the first two years of the presidency. This has been the formula since 1960’s when Keynesian economics have been dominate in the United States.
According to this trend, George W. Bush should be presiding over a bullish stock market and the new president, Barack Obama or John McCain, would have to apply the tough medicine his first year and then slowly crank it all back up for re-election in 2012.
Not this time. This time, the younger Bush president is seeing the stock market go south. If it holds up, or I should say, stays down, it will be the first time in modern history that the market actually declined in a full two year period before an election.
So can John McCain win? Sure. But it won’t be easy. And it means that something big will still have to happen.
The best examples of how other events can trump the economy are the number of times in modern history when a challenger has beaten the incumbent party in spite of a rising market.
The American stock markets fell throughout most of the turbulent Watergate year of 1974 and then began one of their most stunning rebounds. During Gerald Ford’s brief presidency through the end of the 1976 election year, the market had climbed a remarkable 70%. Of course, inflation was a factor, but nothing like the inflation that we would experience under his successor. Nevertheless, in the midst of a booming economy, challenger Jimmy Carter beat incumbent Gerald Ford in 1974 promising the American people that he would never lie to them. It wasn’t about the economy stupid. It was about the pardon of Richard Nixon.
During the same two year period at the end of the George Herbert Walker Bush presidency, the growing markets regained 38% from their bottom. It was twice the two year gain that had propelled Bush into the White House in 1988 after the end of the Reagan years but the perceptions were vastly different. In 1988 the American people were seeing the end of the Cold War and beginning to anticipate the “peace dividend” which would move trillions of dollars from weapons development into education, other social programs, national infrastructure and back to the people in lower income taxes.
In 1992, the last year of the senior Bush presidency, the rising market was an accurate reflection of the positive economic data. But the media, which continued to proclaim a failed economy with heartrending anecdotal evidence, didn’t want to see it. The president’s self confidence about the numbers, thinking that they would be eventually seen for what they were, led to the perception that he “didn’t get it” and turned off voters who elected Bill Clinton to save them.
This later story is instructive. The two year stock market gains, leading up to the 1992 election loss of the first Bush were actually greater than the same gains of the second Bush, which led to his 2004 re-election victory. But it was not about the economy stupid. It was about national security and the war on terrorism.
That’s why this marathon roller coaster 2008 election contest is not absolutely over. Barack Obama’s liberalism is an issue. Polls show that Americans are still not “liberal” and may yet balk at electing “the most liberal member of the U.S. Senate” and what that means for public safety and law enforcement and other issues.
And then the barely controlled media bias against the Republican vice presidential nominee, Governor Sarah Palin, continues to irritate their readers and viewers who don’t like “news” crammed down their throats by arrogant, opinionated, big brothers. They like to make up their own minds.
There has been clear polling evidence that McCain-Palin have partially co-opted the Obama claim on “change.”
With only a little more than one month left before the election, it may only take one outside event to steal the headlines from the falling stock market. Or even a spectacular market bounce. That happened in 1987, leading up to the 1988 election. And then the race would truly be up in the air.
As a historian, I wouldn’t bet on any of it. It’s getting late.
Either way, we will have the first African America president or the first woman vice president. So history wins. BTW, whomever wins, as a historian, I would advise against any major, risky stock market investments this first year of a new presidency. The odds aren’t going to be good.