The Vette Barn - 2012 Presidential Election Effect On Tech Stocks

2012 Presidential Election Effect On Tech Stocks
August 31, 2011
The U.S. Presidential election is set to take place in a little more than a year in November 2012. Despite recent gains, many technology stocks are still trading substantially below their July levels. Is this a good time to buy on the dip, or is it best to sit out current uncertainties? How have technology stocks performed historically during election years?

As many of today's leading technology stocks are relatively new, we examined the performance of the NASDAQ 100 index from October 1 of the year preceding the election to October 1 of the election year, for the past 40 years. Hence, we accumulated data for the past 10 U.S. Elections:
U.S. Presidential Elections 1971-2011
Year Elected President NASDAQ Oct 1 -Oct 1 change
2008 B. Obama Democrat -39.81%
2004 G.W.Bush Republican +2.21%
2000 G.W. Bush Republican +13.59%
1996 Bill Clinton Democrat +17.9%
1992 Bill Clinton Democrat +11.45%
1988 G.H.W. Bush Republican +18.31%
1984 R. Reagan Republican -10.03%
1980 R. Reagan Republican +42.24%
1976 J. Carter Democrat +17.35%
1972 R. Nixon Republican +23.92%

On average, the NASDAQ 100 gained about 9.71% during the past 10 elections, from October 1 of the year prior to the presidential election, to October 1 of the election year. There were 8 up-years and 2 down-years. The up-years averaged about +18.37%, while the two down years averaged -24.92%, being heavily influenced by the 2008 market drop of almost 40%.

Meanwhile, from Oct 1 1972 to Oct 1 2010, including non-election years, the NASDAQ 100 registered average 12-month gain of about 11.69%, with 30 up-years, and 8 down-years. Hence, although the NASDAQ 100 in general had positive performance during election years, such performance was not as robust as non-election years.

Many of today's leading technology stocks, such as Yahoo! (YHOO), Google (GOOG), Amazon (AMZN), and Netflix (NFLX) are less than two decades old while others such as Apple (AAPL), Microsoft (MSFT), Dell (DELL), and Oracle (ORCL) are less than 40 years old. On the other hand, IBM (IBM) and Hewlett Packard (HPQ) have been around for over seven decades.

As a result, we examined IBM stock price data during the past 10 elections. On average, IBM gained about 4.29% from Oct 1 of the year preceding the election to Oct 1 of the election year. Meanwhile, when the entire data from October 1972 to October 2010 is examined, including non-election years, IBM gained an average of 4.77%, slightly more than election years.

In anticipation of 2012 presidential elections, and given August's drop in the share price of many technology stocks, it does seem that this may be a good opportunity to buy some technology favorites. The uncertainty associated with presidential elections that lies ahead is unlikely to have much of a negative impact on the sector.

2012 Presidential Election Effect On Tech Stocks - Seeking Alpha