By  on January 6, 2012

After the Jan. 21 Republican primary in South Carolina, it could be game over for all but one Republican presidential candidate, but to find out which party could eventually win the election, keep an eye on how the equity markets do from August through October.

Those were some of the conclusions from presenters at a New York Society of Securities Analysts presentation on “Market Forecast: Turbulent Times” Thursday at NYSSA’s office in Manhattan.

According to Sam Stovall, chief equity strategist of S&P Capital IQ, many investors believe that the fourth year of a presidential cycle is the best, when in actuality the third year is better, due to legislative actions to stimulate the economy in preparation for a reelection campaign.

Based on the average election-year gains since 1946, the S&P 500 Index in the third year typically posts a 16.1 percent rise, compared with just a 5.7 percent jump in year four. On average, the top sectors in the S&P 500 from 1970 to 2011 were energy, up 15.6 percent, and consumer staples, up 10.2 percent. Consumer discretionary, where retail stocks fit in, only rose an average of 4.1 percent, ahead of information technology, up 0.9 percent and materials, up 0.7 percent.

Stovall also said that if the market heads higher in the August, September, October time frame, on average 86 percent of the time the incumbent party gets reelected. In contrast, when the markets are down, 83 percent of the time the incumbent party is replaced.

Daniel Clifton, partner at Strategas Research Partners, and who directs legislative and public policy efforts at the firm’s D.C. office, pointed to South Carolina as a possible key primary for the Republican party.

“No Republican nominee has ever won Iowa and New Hampshire, and it looks like [Mitt] Romney will do it. If he wins Iowa, New Hampshire and South Carolina, it’s essentially game over,” Clifton said, noting statistics in which South Carolina has picked the Republican nominee since 1976.

Romney eked out a win at the Iowa caucuses on Tuesday. The New Hampshire primary is set for this coming Tuesday, where he is leading the polls.

Philip J. Orlando, chief equity market strategist at Federated Investors Inc., said that concerns over a double-dip recession are now “off the table,” since Japan is on the mend, given the resumption of manufacturing there. He foresees U.S. economic activity to accelerate, with the GDP hitting the 3-percent-to-4-percent territory for the fourth quarter of 2011. Still, the economy this year will likely slow, even though it stays in positive territory, he said.

As for whether U.S. consumers can sustain the spending that occurred over the holiday season, he said that in general they’ve rebalanced their personal balance sheets, although wages have remained stagnant. He also noted his 80-20 rule, in which the “top 20 percent are driving 80 percent of the consumption.”

Orlando pointed to the performance of the stocks of Apple, Coach, Nordstrom, Ralph Lauren and Tiffany, noting that they’re doing well because that’s where the “high-end [consumers] like to visit.”

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