NEW YORK -- A year from now, Wall Street's great question about the 1992 presidential election will have been answered.
No, not whether George Bush will be re-elected.
Rather, it is whether the stock market will turn in a positive performance in the next year, as it has in nine of the 11 post-World War II presidential contests.
According to William LeFevre, market strategist for Tucker Anthony Inc., the stock market "can't be counted on to predict an election winner," but it has "shown a reasonably predictable pattern for the year heading up to the election."
Mr. LeFevre studied the market and those 11 post-World War II elections and found that the Dow Jones industrial average rose an average of nearly 7 percent in the 12 months (October to October) preceding the elections.
In only two of the election years did the Dow fall from the previous year: a 10 percent drop during the 1960 election that saw John F. Kennedy narrowly defeat Richard M. Nixon, and a 1.45 percent drop in 1984, when Ronald Reagan walloped Walter F. Mondale.
In the other nine, the Dow rose in the year preceding the election, from 3 percent (in the 1952 contest in which Dwight Eisenhower beat Adlai Stevenson) to 15 percent (in the 1976 election in which Jimmy Carter defeated Gerald Ford).
Mr. LeFevre thinks the prime reason for the market's rise in the year prior to an election is the same one that prompted the Federal Reserve Board on Nov. 6 to cut the discount rate for the fifth time this year.
In the 12 months leading up to the quadrennial contest, the administration "does almost everything in its power to help the economy," he said. "While the big social issues get plenty of air time on the Sunday TV talk shows and space in newspaper op-ed pages, it is the pocketbook issue that most frequently decides how a citizen will vote."
If the Dow turns in an "average" election-year performance in the next 12 months, it will rise just under 7 percent. Based on the Oct. 31 close this year of 3,069.10, according to Mr. LeFevre, that means the Dow would close Oct. 31, 1992, just four days before the election, at 3,276.88.
Richard Hoey, chief economist for Dreyfus Corp., also sees a familiar pattern: a "credit crunch" and recession in non-presidential election years, followed by a recovering economy and low inflation in election years.
"You had that pattern in 1966, '70 and '74," Mr. Hoey said. "It missed in '78, but then Carter got clobbered [by Reagan] in '80." The pattern continued in '82. Some might argue that the pattern broke in '86, but Mr. Hoey says the economy in that congressional election year suffered a "growth recession" and avoided a credit crunch only because of the collapse of oil prices.
Clearly, the economy in 1990 went into recession, and evidence of a credit crunch litters the landscape as 1991 draws to a close.
The Bush administration has advocated lower interest rates as a means of reviving the economy. But Will the most recent cut in the discount rate be enough?
"I don't know," Mr. Hoey said. "The Fed doesn't know, and the president doesn't know." But he added, "Whatever it takes, they're going to do. And nobody's going to say, 'Don't do whatever it takes, we want to suffer.'
"In this instance," Mr. Hoey said, "the politically appropriate monetary policy and the proper monetary policy are one and the
same: to stimulate the economy into recovery."