Whitefish wise man
Market historian James Stack weighs in on the Dow, the economy, and the Bush-Kerry matchup
Montana isn't exactly what political analysts would call a swing state. Polls show that Big Sky Country is big on President Bush. But despite the lack of political drama at home, money manager James Stack is sure watching the Bush-Kerry race closely. As publisher of the InvesTech Market Analyst newsletter in Whitefish and a noted market historian, Stack knows elections can have a huge influence on market performance. U.S. News & World Report recently spoke with Stack about what the current election season might portend for stocks during the rest of this year and into 2005.
It's been an up-and-down year for the market. Do you think that's because of uncertainty over the election?
Historically, elections aren't big winners as much as they are stable years for the market. Most of the economic stimulus during a four-year political cycle comes in the third year as politicians try to gear up the economy to be running at full steam in time for the election. That's why the third year is typically the big winner.
So would you say this election year is typical or would you describe it as kind of an anomaly?
Almost 60 percent of election years since 1884 have seen the high for the Dow in the fourth quarter, so historically election years will be an uptrending year. The average election year over the past 40 years has seen a gain of about 7 percent, but so far this year we are basically flat. Yet despite all the bad news--oil hitting $54 a barrel, escalating violence in Iraq--the markets' resilience has been somewhat remarkable. One reason is the monetary stimulus that was put into the economy last year.
Does it really matter to Wall Street whether a Republican or a Democrat wins the election?
Basically what satisfies Wall Street is resolving the uncertainty. When I first started the research firm back in 1980, the consensus was that the market does better under Democrats because they tend to have spending programs that stimulate the economy. Then we went through the Reagan decade, and the market went from 800 to about 3000, and all of a sudden the studies inched back the other way to where the market did better under Republicans. Then, in the '90s, we went from 3000 to over 10,000under a Democrat. So, statistically what it boils down to is that the market doesn't care who is elected.
Once the election is over, might the market push higher?
I think we will see a post-election rally primarily due to several influences. One, the uncertainty of the election will be resolved, regardless of who wins. Second, fears of a pre-election terrorist attack will be resolved. In the back of everyone's mind is what happened in Spain. Third, if there is a fear premium in the price of oil and a hurricane premium, that will start to disappear, and oil could stabilize in the low 40s.
OK, what are your feelings then about 2005?
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