Stock market may augur White House winner

The number has been repeated so often by presidential prognosticators that it's an article of faith: No president has been re-elected since World War II with an unemployment rate higher than 7.2 percent.

But the stock market turns out to be a pretty good predictor, too.

The Dow Jones industrial average has soared 62 percent since President Barack Obama took the oath of office during some of the darkest days of the Great Recession. The Dow was just below 8,000 then and stands near 13,000 today.

If a recent study of stock markets and presidential elections is any guide, Obama can start preparing his second inaugural address.

"There's something to this," says Phil Orlando, chief equity market strategist at Federated Investors, the $370-billion investment firm.

There are plenty of other signs often consulted for their political forecasting power, like whether a team from the National Football Conference or the American Football Conference wins the Super Bowl.

Here's one that makes a little more sense: When the economy picks up and unemployment falls, confident investors put money into riskier investments and stocks rise. Voters are likely to reward the sitting president with another four years.

"The stock market reflects trends in the economy," Orlando says. And as any political operative can attest, in a presidential campaign, it's the economy -- you know the rest.

The study was backed by the Socionomics Institute, a think tank studying how a shared mood among a group sways its members' actions. Their researchers dug up data on economic output, prices, unemployment and stock-market performance and matched them to presidential elections.

They went all the way back to the first re-election in 1792, when George Washington beat John Adams and won a second term as the president.

The researchers found a solid connection between the stock market's direction in the three years leading up to Election Day and the election results. Gains of 20 percent or more for the Dow nearly assured victories for sitting presidents. Drops of 10 percent or worse got them tossed out.

The authors of the Socionomics Institute study say everything can be traced back to the prevailing optimism or pessimism. Their organization studies "the social mood." But how do you read the mood of a whole country?

The authors say that the stock market is the best available gauge of how the country is feeling, "because investors can act swiftly to express their optimism or pessimism." Bad day? Time to sell. Things looking up? Time to buy.