Will There Be an Obama Bounce?

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.

Comments

[sleepless_o...:]

So many people are looking for the Obama bounce that I won't be surprised to see the opposite. All too often the majority are wrong when it comes to investment markets.

Jan 19 03:24 PM

[User 265729:]

Well, after the Brits did their banking thing this morning (model that the U.S.A. may try later this week), it didn't turn out too well, did it? All of Europe was a sea of red at closing and the futures for the Dow are in the red too.

I totally agree with sleepless_on_wall_stre... that nothing may come of the Obama factor. I think reality is hitting the markets in the face that the financial sector is insolvent and that the toxic debt may be one to many times our GDP. I think that the markets deal with hard cold realities, not hope.

I don't mean to say that it's not great to have hope -- we all need that. But looking into the future, it's really hard to see a way out of this or where it all ends.

Jan 19 03:52 PM

[scimitar:]

Kathy,

Interesting analysis, but I don't think we can draw any conclusions about Inauguration Day, because we don't have enough data points yet. While 12 out of 16 down days appears to be interesting, I don't think that it's statistically significant. At this point, it's 50-50.

Jan 19 04:15 PM

[kris23:]

12 out of 16 days does seem to be interesting, but sentiment appears to be so extremely bullish right now I can't see how it wouldn't be up. Another interesting point made, however, by sleepless on wall street that so many people will be looking for the bounce it may not even happen. I'm keeping an eye on the overall market sentiment.

Jan 19 04:19 PM

[CautiousInv...:]

Thanks for the data.

The posssiblity of a meaningful bounce may hinge upon the implementation of the bad asset bank.

To spare readers a tedious discussion, which I have already done today, I will present two scenarios. If existing shareholders are simply relieved of the toxic crap on their respective holdings, the market could go up. The stock of the taxpayer goes down.

If the bad bank acquires insolvent bank in toto and existing shareholders take a haircut, the market will go down. The stock of the taxpayer goes up.

Jan 19 04:23 PM

[jenny:]

Obama bounce this week, Obama Crash next week once people realize numbers haven't actually changed.

Jan 19 04:31 PM

[RCA:]

On Jan 19 04:31 PM jenny wrote:

> Obama bounce this week, Obama Crash next week once people realize
> numbers haven't actually changed.

Jenny, you have the cycle right (bounce then reversal), but I believe it will last a little longer than a week.

Contrary to the original thesis by author, Kathy Lien, there will be a bounce. Ms Lien does pay homage to the unique situation of tomorrow's inauguration when she likens Obama to Kennedy. But what Ms. Lien fails to recognize is that the current inauguration scenario is unlike any we have ever seen.

There will be a euphoric bounce due to the fact the we are inaugurating our first black president ever, and this will receive additional momentum because of the hope and hype about Obama's infrastructure spending.

I believe this has the potential to carry the market for a couple of weeks, with the caveat that no bombshells are dropped by Treasury, the Fed, the OMB, or other government reports (I know, that is a big "if").

In late January or early February, however (bombshells or not) people will come to their senses as earnings reports continue to disappoint, and they realize that even "shovel-ready" projects will take months to have any impact on the economy. Fear will replace jubilation, and the Obama bounce will be recognized for what is always was - a bear-market rally based on irrational hope.

Jan 19 04:52 PM

[Tricky:]

Have we already had our Obama rally? We knew he was getting elected well before the election was finalized. Although we didn't have as much data as we do today, we basically knew what we would be getting in a President Obama. So I'm not sure anything changes, as far as investor expectations, on Tuesday morning?

Jan 19 05:24 PM

[corley10:]

the US futures are significantly down at this point. Unless there is a positive event (pre-announce positive earnings, etc) tomorrow we will have a bad day.

Jan 19 06:20 PM

[rber:]

If it happens it will be just another in a long line of bear bounces. I guess "traders" care about this but I doubt any investors do.

Jan 19 06:29 PM

[Archman Inv...:]

Well another absolute piece of useless data.
A chart showing the one day bounces or non bounces for inauguration day.

Can I ask you guys something?

Who really cares??

Doesn't Kathy have anything better to do or write about? I mean she is typically wrong about her currency predictions anyway (yet she gets paid for it, kudos Kathy, where can I sign up?)

This article is just another example of the "one day thinking" that we have to listen to each and every day by the financial media.

I am an investor and look to accomplish one thing:

Long term, consistent, wealth building over time.

This article does nothing for an investor.

Jan 19 06:32 PM

[MarvinMBA:]

If there is a bounce, use it as an opportunity to UNLOAD everything and go into short term CD's is my sage advice. You can alway come back in and you probably will at significantly lower prices. Its going to be years before we have a bull market and when we do it will be based on fundamentals and its going to be years before we see that...MarvinMBA PS expect to get a lot of negative responses to these comments.

Jan 19 07:54 PM

[Freedoms Truth:]

"This article does nothing for an investor."

Yeah, well, neither will Obama. An empty suit article for the empty suit President.

Carter's swear-in day results in 1977 were -1%. Obama is another Carter. We might do the same tomorrow.

Jan 19 10:45 PM

[who:]

I tend to agree the bounce has occurred. PE Obama has said in his speeches that it may take 2 terms of office to solve the crisis, so hope for too much too soon as he paints a not so pretty picture.

Jan 19 11:40 PM

[discov:]

Kathy, it would be nice to know what you were thinking about currencies more specifically. Which currencies?

Ryan

Jan 20 12:45 AM

[KJP712:]

Agree,up big tomorrow.Like the Kennedy comparison,too.

Jan 20 01:04 AM

[James Shaw:]

I believe that market will be an up week this week. Tomorrow is hard to say.

I am a little bias toward an up day even futures are all down now.

So tomorrow opens gapped down but recovered during the day.

Jan 20 01:34 AM

[Maxe Paul:]

Im not sure how you come to the conclusion that "sentiment appears to be so extremely bullish right now" The markets just went down for 7 days in a row! I would hate to see an extremely bearish sentiment. All indexes have turned ovewhelmingly bearish in the last week.


On Jan 19 04:19 PM kris23 wrote:

> 12 out of 16 days does seem to be interesting, but sentiment appears
> to be so extremely bullish right now I can't see how it wouldn't
> be up. Another interesting point made, however, by sleepless on wall
> street that so many people will be looking for the bounce it may
> not even happen. I'm keeping an eye on the overall market sentiment.

Jan 20 02:22 AM

[The Hern:]

I also think there will be an Obama bounce but the important thing is the positive mentality an Obama administration will bring. Sure, earnings reports will be down since we just got off a terrible year in '08. The important thing is going forward and if people just start buying stocks, this negative mentality will change to positive and we will all be better off. Let's let the new governmental policies do their jobs and people gain some confidence and start buying. That's what will change this market.

Jan 20 10:35 AM