Can The Market Predict The Election?

Wall Street enjoyed a big rally Thursday after several big technology companies bucked the trend and posted strong earnings reports.

The Dow surged back above 10,000. The Nasdaq had its third-best day ever.

But the two major indexes are still in negative territory for the year—the Dow is off about 12 percent, Nasdaq is down 16 percent.

So, can we tell who's going to win the presidency, based on the way the market is performing?

CBS News Business Correspondent Anthony Mason has found someone with a theory that night just answer that question.

History shows the stock market usually likes election years. "Usually in an election year, you have a lot of promises being made—promises that imply things are gonna get better" says market analyst Hugh Johnson of the First Albany Corporation.

And while you're watching the poll numbers, you might want to keep an eye on stock numbers. According to Yale Hirsch of the Stock Trader's Almanac, the stock market has been a surprisingly good barometer of who'll win the White House.

Hirsch studied historical market moves between the end of conventions and election days and he noticed a pattern.

"Usually when the market is up in that period, the party in power retains power," says Hirsch.

In fact, 16 times in the past century the stock market went up between late August and Election Day. 14 times the party in power won again, "So, it's a pretty good track record."

In 1992, for example, President Bush saw stocks fall a little over 1 percent during that period—an omen of his defeat. So what does it all mean for Vice President Al Gore?

"On balance, the economy and the stock market we've had—up until this year—would work in his favor. But let's remember the economy is slowing now," says Johnson.

And the Dow, which was at 11,055 on the last day of the Democratic Convention, has slipped since then. So, if Yale Hirsch's theory holds…"right now where the market is would be favoring Bush."

But don't take that as being cast in stone. "There's always the chance of a wild card," Johnson warns.

The most likely candidate would be oil. It could still play the spoiler in this election.

And looking past the election, regardless of who wins the White House, history also shows that the first year of a new term is usually the worst year for the markets.

Remember, that's when the euphoria fades and all of those campaign promises begin to get broken.