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Which Presidential Election might help forecast 2017?

December 21st, 2016 07:12

I came across a couple of articles suggesting that 2017 would be bearish because the Trump rally is following Reagan’s election in 1980.  One such article from Forbes stated,

“During the first five trading days post election, the S&P 500 advance about 2% with both Trump and Reagan.  The S&P 500 continued to appreciate through late November following Reagan’s victory.  From the election to the November peak, the S&P 500 advanced by almost 9%.”

Here are two more articles that touch on the subject. One from CNN Money and another from Investopedia.

These authors compare Reagan’s economic policy to Trump’s proposals, and they point out the fact that that the stock market performed poorly despite the eventual success of Reaganomics.

I wasn’t in the United States in 1980. In fact, I wasn’t even born yet.  And while I know little about politics or fundamental analysis, I do know how to code.  I decided to quickly check these ideas with charts, so I ran a small python script to calculate similarities of daily closing prices in Nov and Dec for each election year since 1980.  It’s likely nonsense to bet that history will repeat itself, but I’d like to know the facts as a decision point when playing with AlpacaScan in 2017.

I am going to used some code-speak to explain how I did the calculations for the charts below, but please be patient with me. The results are pretty interesting.

I grabbed S&P data from Yahoo! and popped it into Pandas DataFrame for each year.  In order to calculate time series data distance, I applied Dynamic Time Warping or DTW.  DTW can generate similarity distance from the two time series data that have different lengths and I can do the calculations even though the year has not yet ended.  Here are the the similarity distances from the 2016 Nov-Dec charts in ranking order.

 

Year

President

Similarity Distance
form 2016 Chart

Chart (Nov+Dec)

2016
(Donald Trump)

  donald_trump_august_19_2015_cropped

0.0

2016chart

2004
(George W. Bush)

330px-george-w-bush

1.9996701124463472

2004chart

1992
(Bill Clinton)

330px-bill_clinton

2.1067353372949817

1992chart

1996
(Bill Clinton)

330px-bill_clinton

4.4241815874271548

1996chart

2012
(Barack Obama)

330px-president_barack_obama

5.6292861798518068

2012chart

1988
(George H.W. Bush)

330px-george_h-_w-_bush_president_of_the_united_states_1989_official_portrait

7.6031730917766431

1988chart

1980
(Ronald Reagan)

330px-official_portrait_of_president_reagan_1981

9.0834979791636261

1980chart

2008
(Barack Obama)

330px-president_barack_obama

9.4508221868731255

2008chart

1984
(Ronald Reagan)

330px-official_portrait_of_president_reagan_1981

11.691707551359851

1984chart

2000
(George W. Bush)

330px-george-w-bush

13.615380919101119

2000chart

(Pictures are from Wikipedia)

Surprisingly, the closest chart results to the current 2016 chart following Trump’s election was 2004 when George W. Bush won his second term. Reagan’s 1980 election was not even close to 2016.  Let’s take a look at what market prices did in similar years.  Below are two S&P charts from the two closest years, 2004 and 1992. Each chart shows price from the first of November in the given year through the end of the following year.

S&P chart 11/01/2004 2004 to 12/31/2005

2004long

S&P Chart 11/01/1992 to 12/31/1993.

1992long

Both years performed well.  2005 saw gains around 3% and 1993 was up by about 7%.

For reference, 01/11/1980 to 12/31/1981, after Reagan took office, was down by nearly 9%.

1980long

The downtrend was already beginning during the 1980 Nov-Dec timeframe, which does not correlate to 2016.

Are you bullish or bearish for 2017? It’s impossible to know for sure which way the market will go, but hopefully these stats give you a bit more knowledge to apply to your trading plan.  Don’t forget to check out all the daily trading research we provide at AlpacaScan.

Try it now!