S&P 500 At 5-Year High May Be Signaling Obama Win

Photograph by Mario Tama/Getty Images

Traders work on the floor of the New York Stock Exchange.

Wagers on President Barack Obama ’s re-election rose last week to a 16-month peak, according to the online prediction market Intrade. At the same time, the Standard & Poor’s 500 index advanced to the highest level since 2007.

Capital Economics senior U.S. economist Paul Dales in London, who’s been tracking the correlation between stocks and politics, says that’s no coincidence. Dales published a Sept. 5 commentary titled, “Is the stock market cheering for Obama?”

Bets on Republican predecessor George W. Bush surged as well in 2004, suggesting incumbency counts more than party affiliation in the markets.

“Markets like certainty,” Dales said. “The market doesn’t really prefer one party to another. With an incumbent, you know what the policies have been and how they will deal with things.”

Stocks also tend to rise with good economic news, which benefits the president, he said.

Economists disagree on the significance of the relationship. Democratic administrations have tended to favor expansionary policies that have boosted job growth, said Harvard University economist Jeffrey Frankel, who was a member of the U.S. Council of Economic Advisers in Bill Clinton’s administration.

“This sounds like a spurious correlation” with markets responding “to well-known perceived effects of good and bad economic news,” said Stanford University economist John B. Taylor, a Treasury undersecretary in Bush’s administration and a supporter of Romney.

Whoever is right, it is good news for Obama. There was a 66 percent chance of an Obama win as of today, according to Intrade bets. Dales figures the president will win reelection so long as the S&P 500 stays over 1,200. That looks pretty certain, he says, with the index at 1465.77 on Sept. 14.

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