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.

By Charley Blaine Nov 2, 2012 2:05PM
Markets will likely be on edge leading up to Tuesday's election -- and volatile the day after and for the remainder of next week. Emotions about the election are high and often bitter. The trench warfare of the campaign is intense.

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.

Obama wins
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.

Romney wins
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%.
195Comments
Nov 5, 2012 12:24AM
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So stocks are overbought and maybe they will correct and then what ?? Tell me O'Swami.....

Is it locked up in a mayonaise jar ??

 

I saw a f*****n bottom in 2008-2009 early spring, wtf were you doing, your sister ?? 

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You G.D. right the tea party scares Wall Street.  They tend to scare all the corrupt and delusional.
Nov 4, 2012 9:08PM
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"New Jersey Gov. Chris Christie says President Obama earned his praise for handling of superstorm Sandy, but Republican Mitt Romney still has his vote

JERUSALEM - New Jersey Governor Chris Christie defended his praise for President Barack Obama's support after superstorm Sandy, but said he would stick with his Republican ticket and vote for Mitt Romney in this Tuesday's election."

 

Translation: Thank you for coming to rescue my fat asss but I'm still going to hang on the bandwagon and whine about spending... even though you are spending it to recover my state. This is why you and I go nowhere when Republicans hold key Offices.

Nov 4, 2012 6:14PM
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This is not the time to be in stocks. Stocks are overbought. It has nothing to do with the election. Google for HAVE WE SEEN THE BOTTOM IN STOCK MARKET to understand how technical indicators ring the bells and turn the odds in your favor.
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There a many opinions as to why the market bottomed in October 2002. Do you think the November 4, 2002, election where the voters giving the US Senate back to the Republicans might have had something to do with the results? The economy appears to do better with the Republicans in the House and Senate. They are the people who write the laws. All one has to do is look at what happened to the economy after the Democrats took the House and Senate in November 2006. Or what made President Clinton look good.....his last 6 years were spent with a Republican House and Senate. 
Nov 4, 2012 2:21PM
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"Crazy 8's is a racist...plain and simple.
It appears the stock market will tank if Obama is elected...not because Obama is re-elected, but because paranoid idiots will pull their money out and make the market drop.  Self fulfilling prophecy if I've ever heard one.  Oh...that's right...the tea party is the American taliban pseudo-theocracy."

Was there ever a time when this wasn't true? There isn't ONE Romney supporter who can tell the rest of us what this man's ACTUAL positions are. He has changed them all at least once. He has no history that merits warrants respect. He was a poor governor, a sleazy businessman. He used offshore bank accounts and evaded taxes. He donated and wrote off charity givings that went to a  false front that bought mudslinging airtime on his behalf. He even has people inside Microsoft rigging these Comments blogs.
Nov 4, 2012 10:41AM
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Romney will be the next President of the United States....(Thank God).  Pack your bags Obummer!
Nov 4, 2012 9:49AM
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Awe aspiring for what....Which way did he flip-flop yesterday; Which way will he flip-flop today..?

 

Man, are you people ever being taken in by the "newest" P.T. Barnum...

 

Sweet Jeezus...I want just one person, to tell me what that person stands for ??

Or what his or the GOP's plan really is ?...I have heard no answers, that are any different, then pretty much what is being done at this time...

There are no "magic bullets"........And Romnesia is "no magician."

Nov 4, 2012 8:40AM
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French Revolution Timeline: 1793 

January 21- Louis XVI beheaded
January 31- More assignats (like a Dollar here)
February - Formation of a committee of Public Safety: rioting in the streets of Paris over high prices March - Revolutionary Tribrunal established: Reign of Terror begins.
May 3- Price control on grains
June 22- Forced loan degreed, a progressive Income Tax
August 1- Trading in specie prohibited
Sept 29- Law of the Maximum- price control extended to all food
October 16- Marie Antionette beheaded. Over 3,000 million new assignats issued during the year.
Only 1,200 million actually entered circulation.

 

This is straight from: Fiat Money Inflation in France by Andrew Dickson White. He read this to members of both parties in Congress in 1876. They listened and averted a repeat of history.

 

Not meant to be scary... but late January a new President is sworn in here in the USA. Who immediately will order more fiat Dollars printed because by then, our economy will be critically imperiled. Congress will form committees to appease the masses, but those committees will be beholden to lobbies, who will demand consumer level corrections. An attempt to fix the housing mess by a forced credit will fail and regardless of opposition- Income Taxes will go way up. Gold Silver and other metal trading and hoarding will be prohibited (if you own it, it's worthless because you can't do anything with it). An attempt to correct by fixing prices without recovering jobs- does nothing but to stop producers from producing because the cost to grow exceeds the harvest price. Supply dries up. The sitting President is impeached before year-end. It is found that way more fiat money went into Wall Street than Main Street but nonetheless is owed by all of us. Banks are shuttered. The Federal Reserve is ended. Wall Street is gotten rid of. Hired-in executives and board directors are thrown out and an attempt to recover people with skills- out of work for 5+ years by then-- is futile. THIS IS STRAIGHT FROM THE HISTORY BOOK. Are we that ignorant to repeat it? Obama already knows what hasn't worked and why. Romney would follow the instructions of wealth and self-interest. Are you blindly stupid? Or will you stand up and not repeat history?

Nov 4, 2012 1:12AM
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IMPEACH OBAMA NOW !!!    OHIO FOR ROMNEY !!!     SEMPER FI

JOHN HARWOOD LOVES OBAMA !!!   CNBC SHOULD LET HIM GO TO FOX NEWS -----NOTTTTT  !!

Nov 3, 2012 11:29PM
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The fact is that since Obama took office corporate profits are up78% and the Dow is up

60%.The far right doesn`t want to hear the truth.I`ll bet my last dollar that those people

hate Obama would absolutely love Obama if they were in the market these 45 months.

Nov 3, 2012 11:10PM
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Crazy 8's is a racist...plain and simple.
It appears the stock market will tank if Obama is elected...not because Obama is re-elected, but because paranoid idiots will pull their money out and make the market drop.  Self fulfilling prophecy if I've ever heard one.  Oh...that's right...the tea party is the American taliban pseudo-theocracy.

Nov 3, 2012 8:57PM
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Mitt is speaking in Eglewood Co. now and it is a very inspiring. If you love this Country and want to restore our greatness...vote for Mitt.
Nov 3, 2012 8:06PM
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Think about this America, after Nov. 6 we do not have to hear a Black Community Organizer call us Folks again...he has no respect for the White People that made this the greatest Country in the World.
Nov 3, 2012 6:22PM
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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.

Nov 3, 2012 5:55PM
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It doesnt matter who wins the election because Wall Street has been set on taking away this years gains. there is no event or good news that will change that!! They are set in maniulation mode right now. Plain and simple fac of life! 
Nov 3, 2012 5:09PM
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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.

 

 

Nov 3, 2012 5:04PM
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It don't matter who wins idiots ! If there is a new FED ? And not easy money Ben ,  thats what the market needs to be afraid of . The next Fed might start to raise int rates at the Fed window on wall street! And start giving people like me who saves money on MY MONEY.. Thats what America needs ! Stop the printing presses Its congress taht tax and spends idiots read your US Constitution ! POTUS means nothing !!! Some people on this board are just plan stupid! Americans need int on their CDs and not the house of credit wall street has been running on from Ben.. Its time for Congress NOT to raise the debt limit! And put the brakes on all this free money from the fed....
Nov 3, 2012 3:15PM
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Jester.....Some of these people are scary....And not too bright..?
Nov 3, 2012 1:05PM
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  Some of these comments actually are scary.  We should go vote and if our choice is not elected, we should be Americans and wish the best for the winner.  That is the only way to ever get this country back to "normal" again.  Working together for the good of us all. 
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