Markets on edge for election day and beyond
Markets could be volatile no matter who wins Tuesday's presidential election. Here's what to expect if Obama wins, if Romney wins or -- worst-case scenario -- if we don't know right away.
The polls -- and the analyses of the polls -- give the nod for a very narrow win to President Barack Obama, especially after a relatively decent jobs report on Friday. Mitt Romney's camp says he's going to be the clear winner.
We'll see. There are some hints from history on what may happen.
If Obama wins relatively clearly -- that is, the results aren't disputed and end up in the courts -- the stock market may well tumble on Wednesday. It did after he was elected in 2008: The Dow Jones industrials ($INDU) were off 7.1% by the end of the week, with the Standard & Poor's 500 Index ($INX) off 7.4% and the Nasdaq Composite Index ($COMPX) down 7.5%.
Yes, those are real numbers, but they may have had less to do with the president-elect than with the ongoing financial crash of 2008.
Obama and Wall Street have an edgy relationship, even though one of the great stock market rallies in history began in March 2009 after he took office. Many on Wall Street have spent millions of dollars trying to push Obama out.
There is a chance for a different outcome. If Obama wins, it means Ben Bernanke will probably stay on as chairman of the Federal Reserve Board until his term expires in 2014. And the Fed's accommodative monetary policy -- the promise of low interest rates into 2015 -- will continue.
Moreover, the odds for a solution to the fiscal cliff -- the combination of tax increases and spending cuts -- will increase. To do nothing won't help Republicans. That will be bullish for stocks.
The first scenario is more likely, but the second is worth thinking about.
If Romney wins the election clearly, the stock market may jump. He himself predicted it would when he made his now-famous comment about 47% of the population seeing themselves as victims.
Our conjecture here is based on the market's reaction to George W. Bush's re-election in 2004. The major indexes jumped about 3% that week.
That return was about all the Dow did for that year; the S&P 500 and Nasdaq ended the year up more than 8%.
Wall Street will be delighted in a Romney win because, the theory goes, regulation will be rolled back and Obamacare will be repealed. And there is the prospect that Romney's vows to fix the tax code will mean lower taxes for the wealthy.
It is possible -- if unlikely -- that a Romney win won't cheer the Street. One issue is Bernanke, who would be pressured by many in Congress to quit and go back to Princeton. Two issues will go through investors' minds: Who will replace Bernanke and when would a new Fed leadership then start raising interest rates? Rising rates are death to stocks.
There's a third issue. Romney is an experienced and successful business executive. But what is not clear is whether he has the political subtlety to convince a tea party-dominated Republican majority in the House of Representatives (and maybe the Senate as well) to trim government spending carefully without tipping the economy into recession. He insists he can lead, but Congress is not a business. There are lots and lots of agendas and scores to be settled publicly and privately.
The tea party scares Wall Street. Look at the reaction in the debt-extension crisis in the summer and fall of 2011. The Dow fell as much as 6.9% before stabilizing in early October; the S&P 500 and Nasdaq were off about 8%.
There is no winner
This assumes that neither Obama nor Romney can come up with 270 electoral votes needed to win. Or results are delayed by the effects of Superstorm Sandy in the Northeast or Ohio.
No one wants this except political talk-show hosts. Least of all investors. When the 2000 Bush-Gore election ended without a clear winner, the Dow fell 3.2% that week, with the S&P 500 off 4.6% and the Nasdaq off 11.3%.
Admittedly, the dot-com bust had broken the 1990s bull market, and the Sept. 11, 2001, terror attacks were ahead.
But a soft economy and a weak stock market do not do well in extreme political uncertainty. Between Election Day 2000 and the market bottom in October 2002, the Dow fell 33%.
After the election??? The stock market has been on a roller coaster for the last 3 weeks. Vote Romney and the stock market will take off, vote Obama and the stock market will be a clusterf*ck for the next year. The people who make the stock market swing, don't trust Obama. Small business doesn't trust Obama ... the white middle class and white upper class doesn't trust Obama. So ... a vote for Obama is another nail in the economy's coffin and the stock market will follow where the economy goes.
If Obama is elected .... put your money in your matress and buy a good tent to sleep in!!
Personally, I have done terrific under the Obama presidency as far as my IRA, 401K and stock investments have gone. In fact, I have never done as well as the last four years. That being said, I am also one that believes that when a system has a foundation based on greed or profit, it must be tightly regulated or it will go amok. Libertarians and many republicans will disagree, but then again, de-regulation, which allowed so called independent rating agencies such as Fitch, Moody's and S&P to deliberately lie, rate junk mortgages AAA and send the country off the cliff, needs to be tightened and regulated much more severely than it is. Romney doesn't want that. That scares me. John Corzine, a democrat, who used deregulation to lose over a billion dollars out of his company and have no idea where the money went is proof. Bernie Madoff could not have done what he did were it not for continual pressure to deregulate starting from the Reagan administration moving forward. Not being a big fan of Obama, I am also a realist. Right wing deregulation policies collapsed our economic system into nearly a full depression. This will not get fixed overnight, as it took FDR many government programs including WPA, tighter regulations on banks and brokerage firms, CCC, over 15 years and a World War to get us out of the depression. Nearly all jobs during WWII were govt. or govt. related jobs . 4 years is far too short of time to expect the economy to flu****elf of the deregulating damage that sent us into collapse in 2008. Credit defaut swaps are still everywhere. Few of the crooks got put into jail or indicted for their theft under Obama, but even less would be held accountable under republicans or Romney. It doesn't look pretty in the future. Tax rates are far far too low. I was at a senior seminar the other day showing old folks with $65K/year in SS and pension checks and federal taxes of only $2200. That is only 3% taxes. We can't operate with most of the people paying little to nothing in taxes and parties thinking we need further tax cuts. Under Eisenhower and Kennedy, the top tax rate was 90%, but the govt. was not creating such debt from lack of funding.
I listened to Mitt speak in Iowa this evening.....very inspiring.
All the community organizer had to say today in Iowa was more hate and revenge.
I did not hear Odumbo defend his past 4 yrs. aside from once again spiking the ball about him entering the compound and putting a bullet in his Brother's Head and paying off his Union Buddys.
The Tea Party Patriots want to encourage parents with children in College or living in their basements to vote Republican Nov. 6......explain to them if they don't, their future is bleak. Explain that 50% of college grads. cannot find work and the ones that do, it's most likely a minimum wage job.
Tell them If Obama is re-elected you may not have a job in the future and most likely you will have to use their college funds to survive......give the kids a dose of Realville.
Tell the kids it is normal to be a liberal when they are young and carefree but when they enter the real world outside of academia it is very different. The time for ideology ends when they are standing in the unemployment line or delivering pizzas.
Wall St. certainly does care who wins...History has the answer to that.
Who Wall St. supports may tell a different story...
But for true investors and not just traders....There's only one GOOD CHOICE.
And history will prove that out...
Short-term, the elections can influence the market, no doubt. In the end, though, it is you and I who make the market work, so long-term I don't think the President has much effect.
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Breaking up big banks is an untested solution to the too big to fail problem that attempts to isolate and dismantle large, troubled institutions while protecting the rest of the economy.
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