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Do Political Conventions Affect the Market?


Opposing parties make for interesting numbers.


When it comes down to it, the Dow has shown quite positive performance after opposing parties' political conventions, though it is questionable that the conventions have much to do with it.

An important part of trading and investing is not only trying to find out what works, but also figuring out what doesn't work. Statistics get passed from one trader to another, maybe even making it to a few reputable news organizations, and before you know it another nugget of market "wisdom" is passed along.

While I hadn't heard the "political convention" one before, my friend and excellent market strategist Tony Dwyer of FTN Midwest Research suggested I take a look at past political conventions and their effect on the market, specifically, how the market acted around the convention of the opposing party to the sitting presidential incumbent.

The theory is that the opposing party's momentum peaks around convention time, which also likely coincides with the peak in uncertainty regarding the election outcome. Once the crowning moment of the campaign is past, the uncertainty lifts a bit and the market is free to rally once again. While the theory may have some merit, and the figures could be construed as backing it up, whether the conventions have any impact at all is questionable.

The table below details how the Dow Jones Industrial Average performed surrounding each of the opposing party's conventions since 1904.

Click here to enlarge.

During the past three election cycles, the Dow showed a negative return in the 30 days leading up to the conventions, which bucked the overall, long-term trend. Most of the time, the market was positive heading into the event.

In terms of the percentage of time the Dow was positive after the conventions had passed, there's nothing particularly remarkable about the results when compared to any other average period.

However, in terms of average return, these periods do appear to be significantly more positive than average. 90 days after the convention, which would roughly coincide with the election, the Dow was an average of 6.5% higher than when the convention began (with 17 out of the 25 occurrences being positive).

That's about triple what an average 90-day period showed during the study period. The average gain was about triple the average loss as well, telling us that those instances that were negative tended to be far outweighed by the positive.
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No positions in stocks mentioned.

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