Smart Money with Keith Springer Saturdays at 1PM and Sundays at 6AM on NewsRadio KFBK 93.1 FM and 1530 AM

October is over at last – Hooray! And How Presidential Elections Impact the Stock Market

Posted At : February 16, 2009 1:31 PM

Well it’s sure nice to have October over. What a month. October should now be considered a four letter word. By the time that “ugly” (not the word I’d prefer to use) month came to an end, major US stock averages were down approximately 20%, and emerging markets were down almost 30%, just for the month! (Warning for when you open your monthly statement). Although things will continue to be pretty crazy, I believe there are 3 main positive factors:

1. Widespread fear and pessimism – You can’t find a Bull on Wall Street to save your life. Practically everybody in Bearish and feels it’s “obvious” that the market has to go down. Well, the market never does what “everybody” thinks. There’s an old saying on Wall Street – “If it’s obvious, it’s obviously wrong!”

2. The Government Bailout is essentially a giant stimulus package – Like it or not, the amount of liquidity that is about to enter the economy is enormous and it will bump the economy significantly.

3. The news is still bad – the market is a barometer for the future, generally 9-18 months out. Stocks tend to bottom and rally while the news is still bleak, well in advance of good news, leaving most individual investors in the dust. As much as it hurts, investors have to get in while the news is still bad.

Where the low for this market is nobody knows, but it looks like we may have to re-test the lows before we can have a strong bounce. 8200 on the Dow is a strong support level, if that breaks we’d likely see the 7800 level that we saw on October 10th. It’s most likely too late to sell as it should bounce very quickly and strongly when it does, and many people who sold will end up getting back in higher than where they got out.

What does the election mean?

The long term outlook based on the election may surprise you. Since 1926, the S&P 500 has performed better under a Democrats than Republicans – 66.0% vs. 44.7% total return or 6.7% vs. 4.6% annual return. Small stocks did even better, with 8.2% vs. -3.5%. Hopefully that will hold true once again.

For now, if you’re a news junkie, fasten your seat belt and keep the Pepto-Bismol close by. Otherwise, go out and have some fun. The sun will continue to come up each day.

Give me a call with any comments or questions.

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