Keith Fitz-Gerald

Presidential Approval, Dow Drop in Tandem

by Keith Fitz-Gerald   08/25/08

With George W. Bush's tenure as president of the United States winding down and the nation focusing on electing his successor, the sitting leader's approval ratings are pulling an "Enron."

An Associated Press-Ipsos poll conducted June 12-16 showed that only 29% of the public gave Bush a favorable rating. It's the least-favorable approval rating for a U.S. president since Jimmy Carter's dropped to just 22%.

While that lousy view of the job Bush is doing will help set up a more-contentious election in November, here's a curious fact that investors will find quite rewarding: The key to better stock-market returns isn't having a president we "love" -- it's having a president that we don't quite hate.

Let me explain.

According to a study of presidential approval ratings by Ned Davis Research that looks back all the way to the days of President John F. Kennedy, when the president's approval rating is below 35%, as it is now, the Dow Jones Industrial Average Index (DJI) loses an average of 5.9% per year.

When times are good and presidential approval ratings exceed 65%, the Dow rises at an annualized rate of 2.6%. But when just 50%-65% of the public gives a favorable rating, the markets do a bit better and the Dow rises at a 5.4% annualized clip. (Click here for the full chart on how the Dow has performed during different presidential administrations.)

Now here's the really interesting part.

When the majority of Americans disapprove of how the president's doing his job, and the approval rating clocks in between 35%-50%, the Dow posts an average annualized gain of 12.3%. In other words, when less than half the population has a favorable view of a sitting president's performance, the Dow's upside potential improves by 127.78%.

Talk about a counter-intuitive result!

For next year, then, it seems that the key isn't for us to elect a president that everybody likes; instead, the country needs to elect a president that the masses "hate" a bit less than they dislike Bush and who only does his job well enough to garner the support of between 35% and 50% of the population.

Anything worse, and the Dow could fall -- which, given "The Dubya's" current lackluster rating, is right on track for how the markets are behaving lately.

And that has us thinking: Who amongst the presidential contenders that are left do we like the least? We're going to be keeping a close eye on the markets, as well as the race for the U.S. presidency, and see how this trend plays out. Stay tuned!

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Don't be disheartened when the Dow drops, as there will always be stocks and sectors in their own secular bull markets. For the latest stocks that are standing strong and getting ready to run, click here to check out our section on Momentum Stocks. Fresh trading ideas are posted several times a week!

Keith Fitz-Gerald is the Investment Director for Money Morning/The Money Map Report. To learn more about Keith, click here to read his bio.

If you enjoyed this article, check out Keith's "Political Gridlock Can Lead to Gains" and "5 Secrets for Bear Market Investing."