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 3, 2012 11:12AM
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Words from Michigan...

Election Day marks TWO YEARS under the dismal governing of Rick Snyder. He's the guy who said he was a great "job creator" but sold his Gateway computer company to a Asian firm and fired all 30,000 Americans. He got rich off the cumulative pile of effort those people put forth, not because he was particularly genius. SINCE governing... he signed a no-helmet law for motorcycles that has raised applicable insurance rates and legalized fireworks. Last 4th of July was pretty much as loud and lethal as any war zone in the 3rd world. MANY cities have banned that legalization because the cost to police what amounts to military-level ballistics isn't in the budget. Snyder is using State Tax monies to undermine businessman Manny Maroun who owns the Ambassador Bridge. Synder wants to build a new bridge without public approval. There is a Constitutional Amendment Proposal on the ballot attempting to thwart Synder's audacity. He says he's going to built it even if We the People say NO. Synder hasn't created ANY jobs. He has not RECOVERED any jobs. He stole MILLIONS due the City of Detroit and forced an Emergency Financial Manager on that city. Police work 12 hour shifts up to 7 days a week. There isn't any EMS vehicles and ALL Emergency Service Personnel took massive pay cuts.

Here's hoping you understand, America... Snyder is a rich college-educated administrator. He's not a wise or competent government Official. He is EXACTLY THE SAME kind of guy that Romney is. He talked a good enough game to snow a lot of Michiganders into voting for him. NONE are benefiting from his term. In Massachusetts, Romney trails Obama by 31%. That's the people in the state he governed... telling him they have no faith in him. It's not a game. They cannot rig the outcome and rake in profits that go offshore. They have to DEAL WITH today's issues. They are severe. All I ask for is a fair chance, I'll take it from there. I don't want a Party of NO in Congress or a rich manipulated divisive vindictive creature in the White House. Just a level playing field. I will be voting Obama a second term so I can keep my small business momentum going. I have decades of corporate experience but am blockaded from my own career field by- Republicans who gave to Super PACs but NOT to American Families. The only GOOD Republican is out here earning it the same way the rest of us are. All others are Elitists. I am not a paid political poster or a card-carrying anything. I am an anti-Republican tired of getting tread on. The entire GOP just spent 4 years suppressing President Obama and he STILL made Progress. Imagine what he can do with our support and a cooperative Congress? That's what I AM voting for!!!
Nov 3, 2012 11:07AM
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Really, the 7% drop our markets experienced in early November of 2008, "may have had less to do with the president-elect than with the ongoing financial crash of 2008."

YaThink?
Nov 3, 2012 10:31AM
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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...

Nov 3, 2012 8:53AM
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When it's all said and done it will all be said and not done. I stocked up on long johns as no matter who wins the price of the heating oil won't go down and neither will the groceries. I took some of my profits a few weeks ago and squirred them away as cash for now, even if the interest equals zero at least the principle remains. I ain't bettin' the farm on either one of these guys. It all comes down to a choice based on past performance or based on promises, pick your poison.  
Nov 3, 2012 7:43AM
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Wall street could care less who wins the election. They are dead set on taking away the gain for the year and no news or event is going to change that. Plain and simple!!!
Nov 3, 2012 6:25AM
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You can bet your **** what ever the market does the rich people who benefit from the ups and downs will know about it ahead of time and prosper either way.
Nov 3, 2012 12:49AM
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Funny Wall Street always wants a Republican win but historically has near always done better under a Democrat. The past four years ain't been too shabby either under Obama after the Bush/Cheney debacle. Ah, Wall Street's infinite wisdom. Petty and short-sighted.
Nov 3, 2012 12:02AM
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If Obama wins, pull your money and get out of the USA!  We don't need you here.  I hear Haiti would be a good sound place for you to buy up.  I bet the people there would work cheap for you.
Nov 2, 2012 11:59PM
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The fiscal cliff will have more to do with market performance than election outcome. However, if past performance is an indicator for the future and we look at Romney's approval rating as governor then there is cause for grave concern, He left office with a 34% approval rating and ranked 48 out of 50. If he couldn't govern how can he be president?
Nov 2, 2012 11:59PM
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Don't worry...Romney will win...Thank God!. I can't believe "someone" hasn't put a bullet in Curious Georges head!
Nov 2, 2012 10:56PM
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Republicons wrecked the economy last time they were in control, but they forget that. My stock portfolio looks a heck of a lot better than how the shrub left it.

Nov 2, 2012 10:27PM
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Obama is a socialist out to ruin the USA and spread our wealth to third world countries  He needs to be stopped any way possible this man has no idea how to improve our economy    And he did not get Bin Laden  the military and CIA did   and that was put into motion by BUSH   Obama has done nothing but increase our debt and cozy up to Muslim radicals maybe the Israeli's should deal with him as the enemy he is   BETTER DEAD THAN RED
Nov 2, 2012 10:23PM
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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.

Nov 2, 2012 10:13PM
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I parked my money a week ago.  If obama wins it's going to be a rocky road, there's the hope of a Romney win in the market right now. If Romney wins I'll get back in, but for right now I am protecting my investment in the event that obama wins.
Nov 2, 2012 9:46PM
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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!!

Nov 2, 2012 9:21PM
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You can tell them a thousand times NEIL , some just do not comprehend....Period.
Nov 2, 2012 9:02PM
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How sad. So many of you rooting for the economy to fail. How Un-American!! If Obama wins, pull your money? How ridiculous!! If Romney wins, corporations will celebrate their ability to screw us over again!! Are you all really that ignorant? Really? It was deregulation that got us into a near depression and Romney is promising more of the same!!! The stock market has more than doubled under Obama and still they aren't happy!! They've made fortunes and will continue to make fortunes, even with regulations!! You who are calling for the decline should be ashamed of yourselves. You in control on Wall Street should be more than ashamed. You should be arrested!!! The numbers, specifically today, do not justify the drop!!!! Every positive indicator is still positive, many more so than negative, and still the market falls? Looks like Wall Street is joining the Romney campaign. One more reason NOT to vote for Romney!!!
Nov 2, 2012 8:50PM
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I think this week's market results have been illuminating. Out of commission Monday & Tuesday... it borrowed Wednesday but couldn't get legs. It got legs Thusday but lost them Friday. Obviously, the acivity isn't for activity, it's for positioning. There are two funny posts here today: If Obama wins, pull your money. If Romney wins, pull your money. What money? Ben Bernanke over-printed the Dollar by a longshot. Some blame Obama- why didn't you stop him? Because, there are three types of currency now-- cash, debt contracts and derivatives. The latter two far exceed the first. Bernanke blew it when he convinced the Fed Board to maintain rock bottom loan rates. They should be exceeding 12% now. If they did, the stock markets would be dismal (rightfully so because the business platforms have no assets). No major business would have debt and all would be using cash to cover operations or filing for bankruptcy potection. The holders of the debt contracts would be negotiating OUT of them to get a partial cash return. Romney says he'll fire Ben Bernanke. He didn't say who would replace him. A Democrat? TWO Republican Fed Princes in a row has ruined us. We literally have to crash the Dow to recover cash to Main Street. We need to shutter Goldman Sachs and JPM in order to restore opportunity to Main Street. Whining about Obama's job creation numbers? How many FAMILY-SUSTAINING jobs has the Business and Financial sectors created or recovered in FOUR years? ZERO. Monday is the big sell-off day. The markets are fake. Selling off gives regular people the best chance to recover some portion of their savings and retirement. The nation cannot exist with administrators, paper and button pushers earning outrageous pay and the labor class living out of dumpsters. Tuesday's election was determined a long time ago. America is wholly polarized. If there isn't a flush out of stonewallers in Congress, then we crash. Simple as that. President... whichever. Congressional cooperation. It's our only hope.
Nov 2, 2012 8:44PM
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Pulled all my investments when Obama got elected the first time and lost no money. We saw t he writing on the wall with Congress's continued abuse of the housing market and the fed's abuse of the monetary system.Since then? My cost of living has gone up an easy $10,000 based on the price of food, gas, and basics. Obama has done NOTHING effective to create a healthier market which translates into HIGHER unemployment now than when he got into office. NOTHING healthy has been achieved to keep us from the fiscal cliff ahead and 4 more years WILL ensure a global economic collapse AND a world war. Obama has set us up and  then next president up with a terrible scenario that will be extremely difficult to correct in a timely manner. 4 years of dysfunction and failed leadership has only worsened the situation. it is now critical.
Nov 2, 2012 8:15PM
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Charley Blaine (author of above article) clearly needs a history lesson. The stock market has consistantly increased more under democratic presidents than republicans. Just look at what the Dow has done durring President Obama's term.It has nearly doubled.  For another comparison look at what the market  did durring Clintons tenure versus GW Bush's tenure.
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