The FTSE is a Tory?

10th April 2005

I started off this week saying that I wasn’t a political animal and yet I have ended the week as I started it by writing about the forthcoming general election.

But as usual it’s not the actual election that interests me, purely the effect it has on the wealth of the nation and so I was intrigues, when I read this week about some research from the Leeds University Business School. They have analysed the stock market before and after recent elections to see how it reacts. This was prompted by a jump of 87 points in the FTSE since Tony Blair announces the next election day as May 5th.

This jump in the FTSE in the period leading up to the election is a common effect of an election announcement but the market reacts more strongly to a Conservative win than a Labour one.

The stock market has risen immediately following 7 out of 8 Tory victories since 1945, but has fallen in 5 out of 8 Labour victories in the same period. In fact, the largest fall was of 7.1% of the index after Labour’s win in 1974.

I suspect that this is for two reasons: firstly, a Conservative government has traditionally concentrated on the economic policies whilst Labour has traditionally concentrated on the social issues (though they suggest that this isn’t really the case anymore): but secondly I suspect that this is partly due to the beliefs and behaviours of the people who run, manage, and effect the stock markets- because I suspect that there are a greater number of Conservatives working in that arena and their personal delight at the Tory win probably overspills into a greater confidence in the market- which pushes prices up.

Once again- and as I teach every week – financial movements are a balance of factual information combined with beliefs and behaviours of the people involved.

Have a great weekend.