Approval Down, Market Up

A few months ago, we wrote that we expected a bounce in President Obama’s approval rating.  While his approval ratings have fluctuated based on the Rasmussen Daily Tracking poll – a is poll that we have consistently focused on due to Rasmussen’s recent accuracy in calling Presidential elections – the more widely accepted Gallup Poll tells a more sobering tale. In that poll, President Obama’s approval rating has been in a directly downwards trajectory.

 

Since January of this year, President Obama’s approval rating on the Gallup presidential job approval rating has fluctuated between 47 – 51%.  On a shorter term basis, President Obama’s approval rating is at 45% and his disapproval rating is at 48% on a three day average basis.  Both of these are the worst approval ratings of his Presidency.

 

Below we have charted the stock market versus President Obama’s approval rating on a year to date basis.  While there is not a clear correlation, it is clear that President Obama’s declining approval rating has not had an adverse impact on the stock market, which has powered higher despite a continued lower shift in Obama’s approval.

 

We have written on this in the past, but, interestingly, negative Presidential approval is actually more positive for stock market returns.  In fact, according to a study by Ned Davis Research, which was summarized in Slate magazine, from 1960 through 2006:

 

“Stocks did better when presidents were doing poorly, and they did worse when presidents were more popular. In the weeks when the presidential approval rating was below 50 percent, stocks rose at an annualized rate of 9.2 percent. In weeks when the approval rating was between 50 and 65 percent, the Dow rose at an annualized rate of 5.4 percent. And in those periods when approval ratings were above 65 percent (about one-fifth of the time), the Dow rose at a 2.6 percent annual rate.”

 

The interesting caveat is that when Presidential Approval gets really bad, the stock market underperforms.  According to the same report:

 

“When presidential approval ratings sink below 38 percent, which they have only 7.2 percent of the time since 1959 (Bush stands at 37 percent in the current Gallup Poll). During such periods of "extreme low ratings, the Dow falls at a 2 percent annual rate.”

 

While President Obama’s approval is but one factor when thinking about stock market performance, it is not necessarily a negative one.

 

Daryl G. Jones

Managing Director

 

Approval Down, Market Up - Obama S P 500