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Super Tuesday Could be Bad for the Stock Market

Super Tuesday has often signaled a short-term bottom in the stock market.

The evidence suggests investors tend to panic about who the presidential nominee will be. But that panic and rebound only come in years when there is an obvious nominee that everybody had been expecting to win.

This year, the big primary day is Tuesday. About a dozen states will hold presidential primaries, assigning a fifth of all party delegates, likely offering some clarity on a presidential race that's seen its fair share of red faces, upsets and collapses.

Super Tuesday brings out the true herd mentality of the investor base — skittishness when uncertainty lies ahead, and overconfident jumping on the bandwagon when the coast is clear.

Take 1996 for example: the S&P 500 dropped 2.9 percent the week before Super Tuesday. Then-favored candidate Bob Dole swept the contests, sealing his GOP nomination. Investors celebrated by pushing stocks up 2.3 percent the next week.

Or look at 2012. The S&P 500 dropped 2 percent in the five days leading up to Super Tuesday. But Mitt Romney had a solid win, and you can guess what happened next: The markets rose almost 4 percent in the next week.

This concept of a drop and immediate rebound only works when there's a clear-cut favorite. After the candidate seals the deal, shares can rise again after Super Tuesday. When there isn't an obvious favorite, and no candidate locks up the nomination is when stocks keep dropping, like they did in 2008 after Hillary Clinton and Barack Obama split Super Tuesday down the middle.

Investors look to a future of uncertainty and party bickering as a danger point for stocks, opting to sit on the sidelines rather than buy.

That brings us to 2016. The Republicans aren't anywhere close to securing a nominee. But Clinton may be able to lock up the Democratic nomination if she has a strong Super Tuesday. As far as Wall Street is concerned, she might not seem like the friendliest candidate, given some of her recent campaign rhetoric.

But remember: Kensho's data suggest the market's short-term bias doesn't care so much about who wins, just that somebody emerges as a front-runner. Clarity and direction is good. More debates and campaign commercials are bad. That's what the market's animal spirits want to see.

Disclosure: NBCUniversal, parent of CNBC, is a minority investor in Kensho.