A funny thing happened this week in the land of statistics — President Obama‘s disapproval rating bested his approval score for the first time in his presidency (46 percent approve, while 48 percent disapprove, according to the latest Gallup survey).
This while the stock market clocked a series of gains to close at a fresh 17-month high. The numbers raise the possibility that a president, whose fans and critics often describe him as a populist, isn’t so popular and suggests that investors don’t read much into Obama’s faltering support.
Actually, history shows such a pattern is the norm, not the exception. In fact, it turns out that when a president seems to have spent much of his political capital, it may be time for investors to expend some of theirs.
How so? As I watched President Obama dip into the polls’ bear-market territory, and pondered the one-year anniversary of the market bottom last March, I was reminded of a study done by the folks at Ned Davis Research that showed that in the post-war era, stocks typically do better when a president is perceived to be doing worse.
It sounds counter-intuitive, but it’s hard to argue with the math. While the Dow Jones average tends to rise about 5 percent on average at an annual rate when a president’s approval rating is in the comfortable range of between 50-65 percent, when approval dips below 50 percent, as it has lately, the Dow is off to the races — rising almost twice as fast, or more than 9 percent year-over-year. Conversely, on those rare occasions when the president is applauded by two-thirds of the populace, stocks stall.
As for stocks, after a year of spectacular gains, the market is now trading at a price-earnings ratio in the high teens — more than twice what it was back in 1982. And therein lies the risk for both Wall Street and the White House. President Obama’s approval rating has ample room to fall, while stock market valuations look like they have far less room to expand.
But lately, some of the patina of likability has been wearing off, raising the risk that ObamaCare will define America’s faith in the Obama presidency. If that’s the case, the stock market and the West Wing may be in for a long, hot summer.
terrykeenan@email.com
