The President’s Approval Rating Doesn’t Move Markets
On the day after the U.S. presidential election, nearly half the country is going to be unhappy with the outcome. One lingering fear investors may have after this particular election―where both major candidates have high unfavorable ratings―is that the next president will enter office unpopular and be plagued by low approval ratings throughout their term.
However, the good news is that the market is resilient, and indifferent to a president’s approval rating. We examined Gallup presidential approval ratings dating back to the Kennedy administration, and found there’s no correlation between presidential popularity and movements in the markets.
But interestingly, we did find that when the president’s approval rating ranges between 36% and 50% the markets tend to do better. In our view, when a president’s approval rating sags, the economy loses momentum, and as a result, the Federal Reserve Bank (Fed) pursues a monetary policy that’s supportive of the markets. For example, in 2013 and 2014, we found this to be the case when President Obama’s approval rating fell below 50% and the markets did fantastically well.
On the other hand, we’ve found that when the president’s approval rating is above 50%, this usually means the economy is losing momentum or perhaps overheating. The Fed then subsequently tightens to cool off the market. We found this to be the case in 2015 and 2016, where the markets didn’t do as well, yet the president’s approval rating climbed above 50%.
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