Stock Market Indicator Says Obama's Going To Win The Election

According to a quirky old stock-market indicator, Barack Obama is going to win re-election tonight.

Based on ancient market lore, almost every time the Dow Jones Industrial Average has closed higher on Election Day than it was on Labor Day, the incumbent has been re-elected, according to Art Cashin, UBS's director of floor operations at the New York Stock Exchange (here via Steve Russolillo at The Wall Street Journal's MarketBeat blog).

The Dow finished trading on Tuesday at 13,245.68, up more than 1 percent from its close at the end of August, the day before the Labor Day holiday, of 13,090.84.

In keeping with the relatively tight nature of the election, the Dow flirted with its Labor Day close off and on throughout trading on Monday before closing slightly above it. But the 1 percent jump left no doubt on Tuesday.

Of course, this does not guarantee an electoral victory for President Obama: Cashin says the market indicator's predictive power "is said to be around 90 percent." In other words, this stock-market indicator is a lot like Sex Panther, by Odion: Ninety percent of the time, it works every time.

In that way, it is a lot like other old shaggy-dog stock-market indicators, such as the Super Bowl indicator, which predicts that a Super Bowl win by a team from the old National Football Conference means the stock market is going to rise for the rest of the year. That indicator has about an 80 percent success rate, but probably not because of who actually wins the Super Bowl.

In fact, stocks are usually rising more than they are falling, including on election days, which Russolillo notes have been higher 80 percent of the time since 1896.

It is true, though, that a rising stock market is often associated with an improving economy, which is typically a boon to the incumbent, which is one of many reasons incumbents often have an advantage in elections.

But the fun of numbers is that you can read them any way you like, to suit your own bias. For example, as Ritchie King of Quartz noted recently, a 7.9 percent unemployment rate either guarantees Obama's re-election or seals a loss, depending on how you look at the numbers.

Fans of Mitt Romney, which includes most of Wall Street, have long presumed that the stock market would rally on a Romney victory and collapse if Obama were re-elected, because of socialism or something. But the market has managed to grind out gains despite the fact that prediction markets and pollsters have kept Obama as a favorite, however narrow, throughout the election season, right up to election day. It is almost as if the stock market doesn't really care who wins the election. But it's fun to pretend.