Wednesday, October 15, 2008

An Obama Panic, or Americans just wanting Obama to get us out of it?

The market descension and Obama's ascension are clearly linked. The conventional take is that when people see their 401(k)s and IRAs losing one-third of their valuations in a span of two weeks, they become angry and direct that anger at whoever is in the Whitehouse. As Randall Parker has reminded us on several occasions, the incumbent party always gets hammered during economic recessions.

John S Bolton, who smelled something fishy in the 2004 national exit polling data, thus spurring Steve Sailer to show the 44% pro-Bush Hispanic figure to be false, however, has been suggesting that the market crash be seen as the "Obama Panic". While the markets have plunged for ten straight days, excepting a one day surge, Obama has been pulling away from McCain, enjoying support above the 50% mark in multiple polls.

I figured one way to approach the chicken-and-egg question would be to look at two correlations: One of Obama's daily support and the market position for the day prior and another with Obama's daily support and the market position of the following day. Zogby does a daily tracking poll that is out by mid-morning. If Obama's support is a result of the market dropping, the former should be stronger. If the market is responding to Obama's gains, the latter correlation should be stronger. Not a definitive test, but it's worth running.

The results at least grant plausibility to John's perception, although they're by no means definitive. The inverse correlation between Obama's support in Zogby's daily tracking poll and the S&P 500* closing the day before the relevant poll began** is .73 (p=.003). For Obama's support and the S&P 500 closing the day of the poll's release (the polls always come several hours in advance of the close to give the market time to factor them in), it's an even more robust .81 (p=.0005). If the market's closing on the same day of the poll's release doesn't feel like enough time for the latter to have an influence, know that at .82 (p=.0004), the relationship holds for the S&P 500 close the following day as well***. In other words, the market follows Obama's polling numbers more tightly than Obama's polling numbers react to changes in the market, albeit not by much.

Another Zogby poll reports investors are more likely to support McCain than they are to support Obama:
53% of investors are for McCain and 38% for Obama, while 52% of non-investors are for Obama and 37% for McCain. More than half - 53% - of investors say McCain can best handle the economy vs. 35% for Obama, and 53% of non-investors say Obama can best handle the economy vs. 33% for McCain.
What percentage of the total population each group constitutes isn't given, but if retirement plans and pensions are included, slightly over half of the population qualifies as an "investor". Given the percentage splits, it looks as though investors and non-investors are evenly divided among the respondents.

Chief executives are even more firmly behind McCain than investors are:
Chief Executive magazine’s most recent polling of 751 CEOs shows that GOP presidential candidate John McCain is the preferred choice for CEOs. According to the poll, which is featured on the cover of Chief Executive’s most recent issue, by a four-to-one margin, CEOs support Senator John McCain over Senator Barack Obama. Moreover, 74 percent of the executives say they fear that an Obama presidency would be disastrous for the country.
But is that even close to enough to send the market plunging more than 20% in a matter of days? When George Bush won in '04, the S&P 500 climbed only very modestly. Obama looked to have the Presidency in the bag early in the summer, and that was before he favorably (from an investor's perspective) re-tooled his capital gains taxation proposal, yet the markets mostly hummed along sideways.

If anyone has an idea for a better way of looking at the question of 'causation', please make it known in the comments.

* The S&P 500 is a better gauge of the market than the DJIA is. Not only does the DJIA consist of only 30 bluechips, it's not weighted by market value, so stocks that don't split end up having more influence on the index than stocks that do.

** Some polls span more than a single day. I use the S&P 500 close the day before the first day of that span. The S&P 500 close following the daily tracking poll still comes from the day Zogby releases the results.

*** In addition to the daily tracking poll Zogby has been running for a couple of weeks, I used results from the other eight Presidential election surveys Zogby has conducted since mid-August so as to include Palin's nomination and also a period of time before the markets began their collective nosedive. On polls conducted over the weekend, the S&P 500 close from the previous Friday was used. When weekend polls were pincered by polls on the previous Friday and the following Monday, I disregarded them.


al fin said...

Obama's ascendancy in the polls has a lot to do with the persistent downturn. Obama promotes carbon taxes and energy use taxes big time, which will be a horrendous drain on the economy. Most savvy investors understand several different ways that Obama's policies will submarine the economy and the market.

There is a growing groundswell of discussion about the "John Galt option" from Atlas Shrugged. An Obama administration backed up by a strong Democratic majority in both houses of Congress will make for very rapid and revolutionary changes in economic policy -- which can only be bad for investors, small businessmen, startups, and professionals.

Under likely incentives from Obama, the best choice might be to go dormant economically.

Fat Knowledge said...

Fortunately, once Democrats are in office, it is good for the stock market.

Audacious Epigone said...


David Frum posted something similarly awhile back. My very first post was in response, showing that a Republican Senate is also 'better' for the market, as is a Democratic House. I'm not convinced, however--I'd like, if I make the time, to look at county level voting patterns and economic inequality, educational inequality, and economic growth. When things are bad, Democrats do well. When things are good, Republicans do well. Since the business cycle is, well, cyclical, that plays well for Democrats. The market crashes, Democrats get elected, and then the market 'inevitably' rebounds. Or things are (fallaciously) good in 2000, and then the market tanks less than two years later.

John S. Bolton said...

Magnificent work, much appreciated. I have to link to this right away.

Odinga said...

"Fortunately, once Democrats are in office, it is good for the stock market."
Incorrect, Fat Knowledge.
The stock market does worst when Democrats have control of both houses of Congress. The Republicans barely escaped being tarnished with the recession of 2001. Fortunately, for the GOP record, Jeffords went Independent and took away the GOP control just in time for that recession.

Odinga said...

Shall we also remind ourselves of the Clinton administration?
Part 1--1993-1994. with Democrat controlled houses of Congress, the nation's economy tanked.
Part 2--1995-2001. with GOP controlled houses of Congress, the nation's economy excelled.
Whenever the economy has been bad, GOP controlled houses of Congress somehow coincided with recovery. Too bad, there's no recovery forecast for the present because we're voting Democrats for Congress aren't we?