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Odds of an Obama victory increase with stocks

September 6, 2012: 11:06 AM ET

Are investors rooting for an Obama victory?

Paul Dales, senior U.S. economist at Capital Economics, turned us on to this fun chart.

The odds of Obama winning in November, as estimated by Intrade contracts, seem to closely track the S&P 500. Although there's probably not a causal relationship between the two indicators, the close correlation seems to indicate Obama is expected to be re-elected as long as the S&P 500 stays above 1,200.

Does this mean investors prefer a Democrat in the White House? Not necessarily. A CNNMoney survey earlier this year showed 70% of investment strategists and money managers believed a Republican president will be better for the stock market going forward. Other indicators show stocks gain more when a Democrat is president.

But coming to any major conclusions about Wall Street's political preferences seems dubious.

Dales points out that the same strong correlation was present during the 2004 election, when Republican President George W. Bush was up for re-election. Perhaps investors just prefer incumbents?

"If there is anything to this latest correlation, it is probably that the equity markets don't like uncertainty, and a victory for the incumbent Obama would mean that they know what to expect," Dales said in a note to clients.

The more probable explanation is that both Obama's popularity and the S&P 500 are driven primarily by the health of the economy. Both come down to how comfortable consumers and investors are feeling about their jobs, income, housing and inflation on any given day -- it's as simple as that.

"Better incoming economic news boosts both the chances of Obama being reelected and equity prices," Dales said.

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About This Author
Annalyn Censky
Annalyn Kurtz
Writer, CNNMoney

Annalyn Kurtz is a senior writer at CNNMoney, where she covers America's jobs crisis, Federal Reserve policy and other economic news. Before joining the site in 2010, she served as a Rotary Ambassadorial Scholar in Prague and interned at Fortune Small Business magazine. @annalynkurtz

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