It’s that time of year when analysts everywhere bring their political biases into their analysis of markets.
My favorite one this year is from David Kostin of Goldman Sachs. Check out his chart.
Kowabunga dudes! The implication is that after mid-term elections, the S&P 500 goes up, on average, 18%! Hooray for mid-term elections then, right?
That’s certainly what ZeroHedge, ZSmarter, and about another dozen popular stock blogs make of it.
In fact, David Kostin goes on to write, “The mid-term election is just 32 days away (November 2nd). Historically, it has marked an inflection point with the S&P 500 recording positive gains during the 12 months after each of the 15 mid-term elections since 1950. Appreciation averaged 18.1% during the first year following the election. All elections have consequences, but the stakes seem especially high this cycle. According to RealClearPolitics.com, an independent political web site that aggregates the latest polling data, Republicans seem likely to gain control of the US House of Representatives while Democrats appear likely to retain their majority in the US Senate.”
Anything released by Goldman Sachs should always be met with a skeptical eye. Remember, these are those snakes who sold people long positions in mortgage backed securities, released bullish analysis reports, but then secretly was short selling them. They were ultimately fined $550 million dollars by the SEC.
RealClearPolitics.com is just another Republican blog pretending to be fair and unbalanced. These guys have been caught red-handed doing things like publishing articles that said Israeli assembly does not attend Obama’s UN address because they were boycotting him. They even showed a video of Israel’s empty seats during Obama’s speech. Fox Nation embedded the video from RealClearPolitics.com on their website as well. These Republican blogs had to issue humiliating updates after claiming Israel skipped Obama’s UN speech. It turned out the Israeli delegation was absent due to the observation of the Jewish holiday of Sukkot. The Israeli consulate released a statement explaining that the Obama administration had been informed of the planned absence and stressed that Israeli President Shimon Peres and Israel’s Defense Minister Ehud Barak were present at Obama speech on Wednesday at the Millennium Development Goals summit.
Further, John Leo at Real Clear Politics, said that Democrats are generally unpatriotic Islamic extremism appeasers. They spammed this email out across the Internet. The article is still posted on their website today at http://www.realclearpolitics.com/articles/2006/06/liberals_need_new_narrative_th.html
RealClearPolitics.com publishes Republican articles from the likes of Thomas Sowell who suggests that most Obama Administration voters and supporters are a blind following who never question what he does because they are in fear of being accused as racists: “The memory of that long-ago episode has come back more than once while observing both the actions of the Obama administration and the fierce reactions of its supporters to any questioning or criticism. Almost never do these reactions include factual or logical arguments against the administration’s critics. Instead, there is indignation, accusations of bad faith and even charges of racism.” The article is posted on their website at http://www.realclearpolitics.com/articles/2009/10/30/dismantling_america_part_ii__98936.html
I could go on and on folks with proof that RealClearPolitics is a pro-Republican blog. So the idea that David Kostin of Goldman Sachs would call them a “independent political web site” is simply not true and shows a Republican bias in David Kostin’s thinking.
Next, David Kostin publishes the following chart:
You see what the subtle suggestion is? Mid-term elections are good for the S&P 500 and mid-term elections where there is a congressional change is also good. Wink, wink, you know how to vote.
Is it possible that with the new Democrat administration coming in and the SEC fining Goldman Sachs $550 million, something that never would have happened in the Bush administration, the company Goldman Sachs has moved even further towards the Republican party?
Stock Trading Masters Have The Knowledge To Destroy This Kind Of Political Bias
Let’s destroy this Republican bias garbage, shall we?
The idea that mid-term elections are good for the stock market was done from a sample of 15 such mid-term election years. So we have to have the same sample size, 15. We will take the last 15 non mid-term election years and calculate the average the S&P 500 has gained from November to November of the following year. We’ll start from 2007, just like David did, and we’ll go backwards from there.
So the average is 11%, 12 months after non-election years, the exact same number David Kostin of Goldman Sachs got for election years. In otherwords folks, mid-term elections don’t have any effect on the S&P 500 whatsoever.
But the market does go up. So doesn’t it have to?
No. September and October are the two historically weakest months of the year for the S&P 500. November and December are usually strong months due to the seasonal “Santa Claus Rally”.
In otherwords, regular yearly seasonality explains why David Kostin’s chart looks the way it does and NOT mid-term elections.
No other stock market blogger on the Internet picked up on this. They all just re-posted David Kostin’s charts on their blogs as if it was fact.
This doesn’t mean that David Kostin is a lying jerk and everything he says is bogus. His report has a lot of good information in it. Your challenge is to separate the good information from the bad. Here is David’s full report.