|The May 6 election in France emphasized how French President Nicholas Sarkozy failed to win a second term, and placed the spotlight on economic factors as the reason. Quotes like this one from The New York Times were common:
“Mr. Sarkozy became the latest European leader to lose his post amid economic upheaval and the first French incumbent to be rejected since 1981.”
Yet none of the French election news coverage described the possible direct link between the Sarkozy’s re-election defeat and France’s major stock index, the CAC-40. Consider these facts:
The bear market in France began in May 2007, scarcely two months after Sarkozy took office. By way of comparison, this turn arrived sooner than did the U.S. bear market; the CAC-40 decline also went much deeper, while its recovery was far more shallow. What’s more, the CAC-40 began to fall again in mid-March 2012, which left the index 14% lower by April 23 — with the national election only days away.
Earlier this year the Socionomics Institute published a study titled Social Mood, Stock Market Performance and U.S. Presidential Elections. Bob Prechter describes one of its conclusions:
“The stock market predicts elections better than do economic variables.”
Please keep this in mind as you read the analysis below, which Alan Hall first published in 2008. It’s as if the CAC-40 and French election now serve as the supporting and decisive new conclusion.
Elliott Wave International has often demonstrated that stock markets correlate well with the popularity of political leaders. In rising markets, leaders are judged by a generally happy populace; in falling markets, it’s the opposite. Upon his election in 2006, the CAC 40 was rising, and French President Nicolas Sarkozy enjoyed the highest approval ratings since François Mitterrand in 1990. He was even heralded as the new Napoleon. His fortunes reversed when the downturn in stocks signaled a souring mood that brought opposition to his policies and proposals, disgust with his overexposed private life, defeat for his political party in municipal elections and a disparaging nickname: “President Bling Bling.”
The chart above is another illustration that no matter how adroit, a politician is at the mercy of social mood. Sarkozy could not have avoided all the damage to his popularity, but perhaps if he’d known how to watch the markets, he could have tempered it. His ambitious efforts to rein in social entitlements, expand the 35-hour work-week and increase the eligibility age for the full state pension resemble someone trying to swim against a tide.
Sarkozy’s approval rating fell by 13 points in January 2008 during the CAC 40’s steepest plunge since 2003. On February 7 the Economist wrote, “Nearly nine months into his presidency, a majority (55%) of the French have ‘a negative opinion’ of him…” Only Jacques Chirac’s 9-month popularity plunge — which ended in February 1996 along with nearly five years of languishing prices in the CAC 40 — matched Sarkozy’s. On May 1 the Economist wrote that Sarkozy’s presidency has resembled a “play in three strangely disconnected acts. In Act One, he was electrifying…. In Act Two … he was mortifying…. In Act Three… he is dissatisfying.” In that one description, you can hear wave 5, wave a, and then wave c, in which Sarkozy’s approval ratings fell “lower than any recorded in the first 12 months of a presidency during the 50-year-old Fifth Republic.”
A 28% drop in the CAC 40 yielded a 43% drop in Sarkozy’s approval poll, from 65% in July 2007 to 37% in April 2008. The rebound from the CAC’s March bottom has brought him a small lift, but his popularity remains near its previous low — an indication that negative social mood continues to hold sway.
Using the Wave Principle to predict a politician’s fortunes can have excellent results. The January 1987 Elliott Wave Theorist Special Report is one example:
… President Reagan will almost certainly survive the Iran ‘Contra’versy. His ‘teflon’ (a slick surface) coating, to which the press continually refers and off of which all potential difficulties slid until 1986’s fourth wave correction, is simply the popular goodwill provided by a bull market. (Contrast that to what bear market presidents Hoover, Nixon and Carter experienced.) Given the Elliott Wave outlook for the stock market going into 1988, the teflon will undoubtedly return, and President Reagan (assuming he lives through his term) will eventually exit as the most loved president in U.S. history.
Much like Sarkozy, the UK’s Gordon Brown has been forced to backpedal on his austerity measures, his party suffered a rout in local elections, and his approval has also plunged.
Today’s deflating property bubble paired with inflating consumer prices is a result of fear, and the typical next step is anger. The collective feelings that generate bull and bear markets ultimately focus on leaders. They are much like a tidal current — visible in stock charts — which elected officials agree to ride when they run for office. If they at least recognize the tidal current for what it is, they have a better chance to navigate it.■
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Most economists, historians and sociologists
presume that events determine society’s mood. But socionomics hypothesizes
the opposite: that social mood regulates the character of social events. The
events of history—such as investment booms and busts, political events,
macroeconomic trends and even peace and war—are the products of a naturally
occurring pattern of social-mood fluctuation. Such events, therefore, are not
randomly distributed, as is commonly believed, but are in fact probabilistically
predictable. Socionomics also posits that the stock market is the best available
meter of a society’s aggregate mood, that news is irrelevant to social
mood, and that financial and economic decision-making are fundamentally different
in that financial decisions are motivated by the herding impulse while economic
choices are guided by supply and demand. For more information about socionomic
theory, see (1) the text, The
Wave Principle of Human Social Behavior © 1999, by Robert Prechter;
(2) the introductory documentary History's
Hidden Engine; (3) the video Toward
a New Science of Social Prediction, Prechter’s 2004 speech before
the London School of Economics in which he presents evidence to support his
socionomic hypothesis; and (4) the Socionomics Institute’s website, www.socionomics.net.
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