Demoralised Republicans had one piece of good news as results poured in confirming a second term in office for US President Barack Obama. They said before the election that a win for Obama would be bad for the stock market and, indeed, share prices tumbled, sending the S&P 500 index below the 13,000 mark. The market then perked up, but has slumped again.
In other words, the market has been performing true to form, according to research from the Bespoke Investment Group showing that, on average, a Democratic win in the White House sends shares down 1 per cent immediately after an election, while a Republican win has the market rising by 4 per cent.
However, Republicans should be cautious in repeating the myth that a Democratic president is bad for stock markets. The opposite is true, according to the 's finding that, since 1945, markets have performed far better under the watch of Democratic presidents than under their Republican counterparts.
Obama's first term in office confirms the pattern. Since January 2009, shareholders in American stocks have seen the average value of their portfolios rise by 92 per cent, including dividends, equivalent to an annual return of 19 per cent.
However, it seems that the political complexion of the White House is far less important in determining the behaviour of the stock market than the apolitical way in which the election cycles move markets.
History records that the market's immediate response to a win by a presidential challenger is more positive than when an incumbent is re-elected. In the 60 days following five previous close elections a win for the challenger produced a 6 per cent rise in share prices, whereas victory for the incumbent produced a more anaemic rise of 2 per cent.
