There’s been a lot of coverage recently about the historical relationship between elections and market uneasiness. Some commentators this weekend even blamed the huge selloff on Friday on Obama’s “unfriendly” tax policy and Huckleberry’s “populist” tax agenda. Setting aside the asinine notion that the selloff had anything to do with results in Iowa (and setting aside the facts that Huckabee’s tax agenda is anything but populist and that Obama’s tax policy is only unfriendly to the people who already have too many friends), it’s worth wondering whether the conventional wisdom regarding politics and markets really holds up.

The prevailing opinion seems to be that Democratic presidents are bad for the economy and thus for the markets, because they’re more likely to raise taxes, increase spending/deficits, and pursue social goals at the expense of big business. And that Republican presidents are good for the economy because they cut taxes and spend less. Lots of bogus inferences in both of these propositions, but rather than getting into all the relevant economic and political discussion, we can look to some, you know, facts, courtesy of David at the Shark Report:

Many investors seem to be worried about the performance of equities if a Democrat like Obama or Clinton is elected. My guess is plenty of folks were bullish on equities and especially the drug/pharma sector after the Bush victory in 2000. Checking the numbers:
DRG Index- 1-19-2001 traded at 402 and now at 334 so down 17% after 7 years- doubtful many folks so that coming;

SPX - 1343 to 1411 - a gain of 5% after 7 years or a hair less than 1% per year;

DJIA - 10,588 to 12,800 - a gain of 21% after 7 years or less than 3% per year compounded;…

The biggest bust - obviously the tech heavy NAZ/NDX- with a loss of 10% and 26% respectively after 7 years;

Hardly what one expects from 7 years of a “pro growth low tax” POTUS;

As he mentions, there are a lot of moving parts in any association you try to make between federal policy and economic performance, and it’s important not to confuse correlation with causation. But more often than not, it seems like worries over the effect that a Democratic president might have on the markets are motivated more by the political biases of FOX News and WSJ neoliberal types than they are by any actual data.

The real point here is that it’s essential to understand the real reasons why markets and economies move, rather than the reasons conveniently served up by the mainstream corporate media.