Will There Be an Obama Bounce?

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 |  Includes: DIA, QQQ, SPY, UDN, UUP
by: Kathy Lien

On Tuesday, the United States of America will swear in a new President. Unlike many other Presidents in the past, the Obama phenomenon spans the globe. This global support has spurred speculation that we may see an Obama Bounce in US equities and currencies on Tuesday. However based upon the past price action of the Dow Jones Industrial Average on Inauguration Day (Jan 20), investors should think twice about an Obama Bounce.

Taking a look at 50 years' worth of data which spans 10 Presidents, Inauguration Day results in more down days than up. The Dow fell on January 20th 12 out of the past 16 Inaugurations. Although the trend was much more significant in the 60s and 70s, it has been relevant since then. The pattern also does not hold any bias to the party of the new President as exactly half of the positive days occurred during either party's new administration.

However it can be argued that the global adoration of Obama is unique. Many people call Barack Obama the John Kennedy of our times and it should be worth noting that stocks rallied on the day that Kennedy took office. History does not support arguments for an Obama Bounce but it is still a possibility. Since currencies are taking their cue from equities, if investors express their optimism towards Obama in equities, we could see a bounce in currencies as well.