As you are no doubt aware, 2008 is a presidential election year. As a citizen, you may well have a great deal of interest in the election, but how about as an investor? How does an election year affect the investment climate? And - again from the perspective of an investor - does it matter who wins?
To begin with, let's examine how the stock market reacted in the past to the selection of a president. The Dow Jones Industrial Average rose in nine of the past 11 presidential election years, with an average gain of slightly more than nine percent. So it's clear that, for the most part, the market has done pretty well when America goes to the polls.
Does the election or re-election of a president just make us more optimistic, leading us to invest more heavily and thereby drive up the markets? Probably not.
In reality, many factors - such as corporate profits, geopolitical concerns, interest rates and inflation - drive stock prices. And this is true in all years, whether an election is held or not. Consequently, stock returns from past presidential election years, while impressive, cannot serve as a reliable predictor of what the market might do in 2008.