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Do Markets Behave Differently In Election Years?

Do any trends form in the time after elections? Does the winner matter? Sterling Smith of FuturesOne has compiled a non-partisan look back and has found surprising results. Get this unique and complimentary Markets and Elections Report today.

It is the first of October and we have wild markets and both the Cubs and the Sox are in the playoffs. Things just get stranger everyday. The markets are going through a major period of adjustment. So, let's take a walk around the markets and see where we are at and look at some ideas I have about where we may be going.

S&P 500/Dow and Nasdaq: The S&P is down a little over 20 percent for the year. It should be noted that in presidential election years the stock market has performed better than in non-presidential elections years around and following the election. Several indicators indicate that at least an intermediate term bottom was placed during Monday's sell off.

The political football of the Wall Street repair package will keep the market on edge until something is done. While I think something does need to be done, let's all hope that it is the right kind of things to restore confidence in the markets. My name is Sterling Smith and I am bullish on America...that is my line and I am sticking to it.

So, in general I think we have seen the stock lows for, at the very least, the intermediate term and maybe longer - as long as Congress can put aside its alienation, politicking and general childishness, and fix the mess and put in some rules so that something like this never happens again.

Bonds/Notes/Eurodollars: During this ongoing mess, yields on short term treasury bills reached nearly zero. This sort of behavior is not sustainable, and if and when congress passes its bill, we are going to have some large government borrowing occurring. This increase in supply should push interest rates higher, and this will push these contracts lower. Credit needs to flow through the economy, and it will. But, the price needs to be higher to make it happen. I am looking for the interest rate complex to work lower, and this would be helped by a stable to firmer Stock Market.

Crude/Unleaded/Heating Oil: Crude oil has dropped about 1/3 from the July highs, and gasoline on the board has dropped $1.10 a gallon from the highs. It is, in my estimation, the single most important factor in keeping the economy moving and to prevent further pain. Lower energy prices help everyone right now. I do think the back of the big bull has been broken, and hurricane season is nearly past us. I remain firmly bearish here and I think we could see oil closer to $70 by Thanksgiving. Let's all hope I am right about that.

Gold/Silver and Copper: Gold can be referred to as the metal of fear, and the markets have certainly given us plenty of that. The wild swings in the month of September certainly weigh this out. However, when I look at my chart, I see a market that is not a raging bull...I see a market that is growing tired. The inability to hold $900 is a sign that things are changing here. We did have two days of wicked rally, and bear markets usually have these sorts of snap type action. I am bearish with care on gold. A continued inability to clear and hold $900 could lead to a retest of the August lows and then some. Silver is gold's mean little cousin and its chart actually looks more bearish than gold's so expect any move in the gold to be exaggerated here.

Copper is the metal of economic expansion. Prices have slid with economic issues, but also with the rising dollar. I expect copper prices to continue to work lower but with less volatility than the other two metals. Look for prices to begin to stabilize sometime in mid 2009.

Currencies: The US dollar fell into a multi year bear market at the beginning of 2002. Something happened through the balance of 2008, as the slide finally stopped. Currency markets lock into trends that can last, well, for years. It is very interesting that demand for Dollars developed just has all our carnage started. A stronger dollar weighs on commodities, and especially crude oil. I hold the belief that the currency markets are the smartest of the markets, and this chart tells me that fortunes in the US are getting very close to changing...for the better. So, I am bearish the Euro currency and bullish the US dollar for the next several years. Please contact me directly for my thoughts on the rest of the currencies.

Coffee/Sugar and Cocoa: Cocoa has a solid track record of dropping every year after a presidential election, and I think prices there are overvalued right now and we could see a notable drop here.

Sugar: This is much more of an energy play than a foodstuff. My longer term thoughts here are bearish as well, as the stronger US dollar and weaker energy prices slowly push prices here lower.

Coffee: Coffee has a 4 year cycle and next year we should see lower production. So despite my generally bearish view towards most commodities, coffee could be the outstanding exception in the coming months.

Grains: Corn at $7.00 is very disruptive to the food chain, and I do like to eat. Much like the crude oil, I think the big bull here is finished. Firmer dollar and general softness in prices will lead prices back closer to normal in corn, beans and wheat.

Summary: We are coming out of a surreal market experience, and yes, there will be some bumps and bruises. But, I do not in anyway shape or form think we are in some sort of great depression type scenario. The world is as different as night and day from where we were then. Things move faster and the rest of the world is growing faster than ever. We move knowledge at the speed of light and this will improve things. So, what downturns we do have will be, in my opinion, very short lived. We will have many good things to trade.

My name is Sterling Smith and I am bullish on America, the future and the world.

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Do Markets Behave Differently In Election Years?

Do any trends form in the time after elections? Does the winner matter? Sterling Smith of FuturesOne has compiled a non-partisan look back and has found surprising results. Get this unique and complimentary Markets and Elections Report today.