From: Linda (firstname.lastname@example.org)
Date: Thu Nov 02 2000 - 11:54:54 PPET
[Not sure what to make of this. Your thoughts, GeegE?
The Dow of Elections Theory
By Daniel Gross
Special to TheStreet.com
11/1/00 10:09 AM ET
As the presidential campaign sprints into its final, frenzied week, the
outcome remains in doubt. The polls are inconclusive. The electoral map
includes a patchwork of toss-up states. And the prognostications of
CNN's political pundits are about as insightful and accurate as those
made by their financial counterparts on CNBC.
There is, however, one indicator that has been remarkably successful in
predicting the outcome of presidential elections: the Dow Jones
Industrial Average. The Dow's performance over the past three months may
provide a clue as to what may happen next week. After all, the Dow has
seen more political campaigns than Harold "Kid" Stassen, the
93-year-old former Minnesota governor who first tried to get the
Republican nomination for president in 1948, and has run in virtually
every campaign since.
For the past 100 years, the performance of the Dow in the three-month
period between July 31 and Oct. 31 -- the heart of the political season
-- has predicted the winner with a remarkable degree of accuracy. When
the market rises, the incumbent president, or the nominee of the
incumbent party, usually wins. When the market falls, the challenger is
more likely to win. This Dow of Elections Theory held true for 21 of the
25 elections in the 20th century. It has proved a reliable oracle in
each of the last seven campaigns, in nine of the last 10, and in 14 of
the last 16.
Intuitively, the theory makes sense. In 1992, when the Dow slumped 5%
during the political season, it neatly mirrored incumbent President
George Bush's feeble campaign, which offered few solutions to the
country's economic malaise. Four years later, Bill Clinton cheerfully
floated above the recumbent Bob Dole, and the Dow zipped upward 9%,
smashing through the 6000 mark.
And so on. Back to the 1900 barnburner, in which incumbent William
McKinley (assisted by a 4% election-season rise in the industrials)
fended off the fire-breathing William Jennings Bryan for a second time.
There have been four instances in which the theory failed: 1968, 1956,
1932, and 1912. Most of these campaigns are what statisticians call
The most recent instance, 1968, was a year of serious political
meltdown: protests against the Vietnam War, the assassination of Martin
Luther King Jr., the abdication of Democratic incumbent Lyndon B.
Johnson and the murder of presumptive Democratic nominee Robert F.
Kennedy. Add a potent third-party campaign by Alabama Gov. George
Wallace, whose racial message appealed to formerly solid Democratic
strongholds in the South, and the fix was in. Republican Richard Nixon
won, even though the market rose about 7.8% in the campaign season.
During the 1956 campaign season, incumbent Dwight D. Eisenhower cruised
to re-election, even though the Dow fell during the campaign season. But
the country was in the midst of a consumer-driven boom, and the Dow had
risen 65% since Ike took office. (On Nov. 23, 1954, midway through Ike's
first term, the Dow finally topped the Sept. 3, 1929, high water mark of
And like George W. Bush this year, Eisenhower in 1956 was running
against an opponent who may have been too intellectual for his own good:
Adlai Stevenson. A Stevenson supporter once reassured the candidate that
he had the thinking man's vote locked up. "That's nice," Stevenson said,
"but I want to win."
In the 1932 campaign season, even though the Dow rose 14% during the
fall campaign, incumbent Republican Herbert Hoover didn't have a prayer.
The Great Depression was already well under way, and the Dow had fallen
a shocking 80% during Hoover's disastrous tenure.
Finally, there's the 1912 election, in which incumbent Republican
William Howard Taft lost even though the Dow inched up 1.1% during
crunch time -- but this election was truly bizarre. Teddy Roosevelt, who
had anointed Taft as his successor back in 1908, felt a need to get back
into the arena, and mounted a typically manic campaign on the
Democratic challenger Woodrow Wilson received just 42% of the popular
vote but snared 435 electoral votes. Roosevelt took home 27% of the vote
and won big states like California, Michigan and Pennsylvania. Poor Taft
got just 23% of the votes -- the worst-ever showing for an incumbent --
and carried only Utah and Vermont.
What does the Dow of Elections Theory tell us about the 2000 campaign?
Well, on July 31 -- a volatile day -- the Dow closed at 10,521.98, after
ranging between 10,374 and 10,727. For much of the latter part of August
and virtually all of September, the Dow stayed above that level -- and
Gore led in the polls. For much of October, as the Dow fell below
10,500, Bush generally led in the polls.
Tuesday, the Dow closed at 10,971, up about 4.3% from July 31. That
would seem to indicate a Gore victory on Nov. 7. But, as pollsters --
and journalists -- are fond of warning, these numbers are well within
the margin of error.
Daniel Gross (www.danielgross.com) is the author of Bull Run: Wall
Street, the Democrats, and the New Politics of Personal Finance. The New
York-based journalist has written about the intersection of business and
politics for The Washington Post, New York magazine, The New York Times
and The New York Observer. He welcomes your feedback at
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