When the Gallup Poll Presidential Approval Rating is between 35% and 50%, as it is today, the Dow has delivered an average annual return of 9.9%.
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President Joe Biden's low approval rating may bode well for the stock market, according to a Wednesday note from Ned Davis Research.
Biden has had a historically low approval rating throughout most of his presidency. According to Gallup, it peaked at about 57% in the first few months of his term, but has since consistently moved lower and is currently at the lowest level yet, sitting at 37%.
Biden's low approval rating is likely tied to America's pessimistic view about the economy, even when by most measures the economy seems to be on solid footing.
But the bad news for Biden might actually be good news for the stock market, according to NDR.
"While this is surprising to most who have not studied going contrary to sentiment extremes, it actually leans hopeful for stocks," NDR said.
When the Gallup Poll Presidential Approval Rating is between 35% and 50%, as it is today, the Dow Jones Industrial Average has delivered an average annual return of 9.9%.
When the approval rating is between 50% and 65%, the Dow Jones delivered an average annual return of 7.6%, and when above 65%, the Dow Jones delivered an average annual return of only 2.4%.
On the flipside, an approval rating below 35% saw sharp declines in the stock market, with the Dow Jones delivering an average annual loss of 12.7%, according to NDR.
"This suggests the bulls may have more room despite the excessive investor optimism," NDR said.
Investor optimism has been rising in tandem with this year's stock market rally, a bearish contrarian signal. But Biden's low approval rating helps offset some of this optimism.
"Investors are complacent and positioned for bull markets. Yet, this is offset by some low economic and presidential confidence," NDR said.
