NEW YORK (CNNfn) - Forget the polls showing Al Gore and George W. Bush tied in the race for the White House. Use the stock market to predict the winner instead. Or just opt for the Washington Redskins.|
According to the New York Times, the performance of the Dow Jones industrial average shows a remarkable ability to divine the White House victor.
So, too, do the NFL's Redskins.
But there's a problem this year. The Dow indicator predicts a Gore victory. The Redskins barometer anticipates a Bush White House.
"I don't buy any of it," said Greg Valliere, a Washington-based political economist with Charles Schwab.
He's not alone. The two whimsical theories are part of a body of lore built around the intersection where sports, politics and stock markets meet.
Crystal ball, or just coincidence?
In one statistical trend, when the Dow gains from August through October -- the race's home stretch -- the incumbent wins the presidency. When it falls, the challenger captures the White House.
The gauge, the Times said, correctly anticipated the winner in 22 of 25 presidential races since 1897, when the Dow debuted.
And with the Dow advancing 4.3 percent between August and October, Gore looks good.
Not so fast. The Redskins, in the final home game before the election, lost to the Tennessee Titans. The last Redskins home game before the election has proven pivitol, with a 15-0 success rate, according to ABC Sports, which broadcast the game. A Redskins win means a victory for the incumbent; a loss lands the challenger in the White House.
On the Dow theory, Schwab's Valliere accepts that a strong stock market is good for the incumbent, particularly in a time when more Americans than ever own stocks. But tech stock owners may not be as satisfied as holders of stocks in the Dow, home to many industrial, financial and drug shares. The Nasdaq is down nearly 11 percent during the August-October period.
This hasn't been a good time for quirky market predictors. Consider the Super Bowl indicator.
This divining rod holds that if a team from the old American Football League, pre-1970, wins the Super Bowl, the market will decline that year. If a team from the old, pre-1990 National Football League wins, the market will rise.
The indicator worked until recently.
But the Denver Broncos, an original AFC member, won in 1998 and 1999 and the market rallied those years.
And the St. Louis Rams, which have moved twice but are an original National Football League team, won the Super Bowl this year and the market is down.
"The problem is there are exceptions," said Hugh Johnson, chief market strategist at First Albany. "You're still left with the question: Is this the time when it won't work?"
Back to politics, a study by Merrill Lynch found the White House occupant has little bearing on future market performance. Eighty-five percent of the market's years since World War II have been up anyway, Merrill said. Still, a UCLA study found higher returns during Democratic administrations.
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What gives? Complications arise from which stock market gauge is used and which time period is measured. Using an Election Day start can bring a different result than beginning with inauguration day, nearly three months later.
"Regadless of who is elected president, it takes a long time to change tax and spending policy," First Albany's Johnson said.
Republicans look bad for the markets when the Herbert Hoover years, which include the 1929 stock market crash, are averaged in. Democrats look great when the Clinton years of the 1990s are used.
Still, Schwab's Valliere points out that Wall Street's best scenario is often divided government, where opposing parties control the White House and Congress. The gridlock of the 1994 through present period was much better for the markets than 1992 and 1993, when Democrats controlled both branches of government.
If the stock market can predict the future, First Albany's Johnson forecasts a Bush victory.
He notes that the industries considered helped by a Republican White House – tobacco, oil and drugs – have done well in recent months.
Still, those sectors could be rallying as investors move into defensive stocks amid a slowing economy.
And then there's the hemline theory, which holds that rising skirt lengths lead to rising markets.
According to the editors of Barron's Dictionary of Financial and Investment Terms, the hemline theory "has remained more in the area of wishful thinking than serious market analysis."