Markets and the Election

I have written a few times about the Iowa Electronic Markets, and their past accuracy in predicting election results. What is even more interesting is how the real market, the S&P 500 Index, has tracked the IEM election market. Eric Engen has compared the Kerry vote share on the IEM to the S&P 500. The charts show a direct inverse correlation between Kerry's vote share and the S&P 500 - basically, every time that Kerry "futures" have gone up, the S&P 500 has gone down, and vice-versa. His assertion, is therefore that Kerry is bad for the market and that the market expresses that by falling whenever there is an increased prospect of a Kerry victory. Its an interesting analysis, but it suffers from one problem - namely is the IEM a leading, concurrent, or lagging indicator. Just as plausible of an interpretation could be that the stock market declines on negative economic news (or news that does not meet expectations), and that at the same time this type of negative news is helpful for Kerry futures (because it is negative for Bush futures). So is a declining stock market good for Kerry, or is the prospect of a President Kerry negative for the stock market?