OPINION: A president’s approval rating is often inversely correlated with the stock market. Here’s why.
This question is not as off the wall as it might otherwise appear. Not only have researchers discovered a correlation between the stock market and presidential approval ratings, with one major exception that correlation is inverse. That would mean that what’s bad politically for Biden could be good for Wall Street.
The notion that exaggerated political beliefs might have an impact on the stock market traces to work conducted by Ned Davis Research. The firm has found that, except for when the presidential approval rating is particularly low , there is an inverse relationship between it and the return of the Dow Jones Industrial Average. DJIA, -1.30%
Why would a president’s approval rating be inversely correlated with the stock market? One plausible theory is that a high approval rating is associated with unrealistic expectations generally — not just politically but also in the markets. It’s not just Monday morning quarterbacking for me to point this out.
Today, in contrast, many have an equally exaggerated, but opposite, view of the political and economic environment. This may very well set up the preconditions for surprises to be on the upside in the coming year.
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