Curious Capitalist

Who’s Better for Markets: Romney or Obama?

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Jin Lee / Bloomberg / Getty Images

Traders work on the floor of the New York Stock Exchange in New York City on Aug. 7, 2012

There’s a growing bit of conventional wisdom that says that if Mitt Romney is elected, the stock market will soar, and if President Obama gets another term, we’ll enter a bear market. Romney said as much himself to a group of $50,000-a-plate supporters during his infamous 47% dinner talk. But does historical evidence support this claim? In a word, no.

Sure, there are plenty of investors who believe that the markets would favor a Romney victory. A recent Barclays survey of institutional investors, hedge-fund managers and corporate executives found that most thought that stock markets would rally more, and longer, under a President Romney, though their enthusiasm was muted by worries over a more hawkish Fed (Romney has hinted that he’d like a Fed head that would tighten the money spigots) and protectionism. (Romney may score campaign points by talking tough about China, but no corporate leader wants to risk a trade war, or even a trade skirmish, with the Middle Kingdom, which has been responsible for the bulk of the world’s post-financial-crisis growth.)

(MORE: U.S. Economy Adds 171,000 Jobs in October, but Challenges Remain)

But while much of Wall Street is, of course, going to believe in a candidate that is less likely to raise taxes on the rich and get tougher on banks, I’m more interested in the historical data put out by folks like renowned fund manager Ken Fisher, showing that over the past eight decades or so, stocks tend to rally no matter who is elected President, mainly because it alleviates political uncertainty and (at least for a few months) unleashes pent-up animal spirits. Interestingly, the only scenario in which stocks do tend to dip is when a Republican President is replaced by a Democratic one — which, obviously, isn’t an option this time around.

(PHOTOSThe Recession in Pictures: America Copes with a Stagnant Economy)

I think it’s fair to say that bonds will continue to do better with an Obama victory, because that’s likely to indicate a continuation of “business as usual” at the Fed, as HSBC head of FX strategy David Bloom recently put it, meaning that Ben Bernanke and company will keep buying bonds and other low-risk assets to try to push investors into higher-risk assets like stocks. Historically, that’s actually pushed up stock-market prices — indeed, anyone who thinks Obama hasn’t been good for stocks should consider that equities have been up about 19% a year during his tenure, as the Financial Times’ James Mackintosh pointed out in a smart piece (registration required) on Sunday.

But I’m skeptical of the idea that a Romney victory would unleash some sort of new bull market in stocks. After all, he’s talking about reducing the money flow that has enabled the rally so far, and also tightening public budgets at a time when companies aren’t spending — and consumers can’t pick up the slack for the public sector without creating a new credit bubble. As Jim O’Neill, head of Goldman Sachs Asset Management, said recently in a note to investors, “A combination of large fiscal tightening and pressure on the Fed to reduce its monetary friendliness doesn’t seem like a great combination for equity markets.”

(MORE: Dark Money: The Rise of Outside Spending in 2012)

Indeed, I think that while we’ll see a modest rally no matter who’s elected, the next few months of market performance will be driven by two things. One, whether or not Congress comes up with a quick resolution to the fiscal cliff (there is an argument to be made that Romney could do that more quickly, though who the heck really knows). And two, even more important, the economic situation in the rest of the world. If you look at what has brought the market down recently, it’s been the weaker-than-expected earnings of companies from Dow to 3M to Apple, caused largely by continuing troubles in Europe and slower growth in emerging markets like China, India and Brazil. That’s something that has nothing to do with elections — and it’s something no President will able to control.

54 comments
alexande007
alexande007

I am a Chinese living in misery, hope that the Chinese government eradication, we want democracy and freedom, hope dictatorial regimes disappeared from China!

joanliu1
joanliu1

We'll see - in either case, hold on - the biggest factor for stockmarket direction is the end of profit growth from continued cuts (thiswon't change until demand increases, and if it does, oil/gasoline willgo up to keep discretionary spending in check).I am beautiful woman and I love good man…..inter racial romance is my dream… so I joined —blackwhitePlanet.С0M—–it's where to- connect with beautiful and excellent people!The only thing more tiresome than the long listof obama's abject failures is the even longer list of rationalizations of those failuresby his chorus of acolytes.Listen up, zeke.  George Bush isn't on the ballot.  Either is JFK or Abraham Lincoln.  Reagan never blamed the economic mess he inherited on Carter.  He never had to.

skmind
skmind

Under Clinton the DOW tripled.  Under George the Younger it shrank 22%.  Under Obama it is up 60%

Why is this myth being propagated?

AKFourtySeven
AKFourtySeven

Just some of my predictions on what it’s good to live in the Southern hemisphere:1. Poll watchers will fight and argue at poll stations on election day. The news focuses on voting problems.2. No winner declared on election day. The announcement is delayed one day.3. It’s a close call and both sides are arguing about ballot printing errors and hurricane Sandy.4. On the 8th or 9th, the 47% wants Romney to concede. But he won't and he raises nine kinds of hell like in this video: http://www.youtube.com/watch?v=TxMD02zU9SE5. Romney creates tension as Obozo declares himself the "winner" on the 9th and riots erupt in LA and NJ.6. Obozo continues destroying America for 4 more years before Hillary Clinton becomes president (see below).7. More immediate: People stop spending, businesses stop investing, debt deflation weighs on us. There is a selloff in January on high volume. DJIA drops 3000 points in a week. Big ATM lines and bank runs.8. Unemployment jumps, real estate declines, taxes increase, gas is $6/gal, hyperinflation. Half of all small businesses fold.9. March, 2013 the GDP doesn’t support profit on war but Obozo sends more warships to Asia. Russia warns of a global NUCLEAR war.10. Everyone hoards and supplies run low – there are strip mall stores selling survival gear like “we buy gold” stores.11. Merkel says our sanctions on Iran make us look like sissies. We do more and China and Russia veto our actions. Obozo’s puppet strings are pulled.12. Israel gets pushy and strikes. We step in. It’s called a NATO “peacekeeping effort”. Hezbollah attacks. Wide regional war, then China sends forces to push us back as Russia stands behind and advises them.13. Europe, Britain, Saudi Arabia help us start WW3 with China.14. Germany’s elections are held in October and more weight is put on the US. We give in to China, just before they bomb us with the Tsar bombs supplied by Russia that are 1,400 times the size of the bomb used on Hiroshima.15. Our national anthem is changed to a combination of 義勇軍進行曲 and священная наша держава16. Hillary is elected president of the United Republic of America, her brain is implanted with chips controlled by the Chinese.17. It’s the year 2020 and you can still get low, low prices every day at Walmart, because it’s the only choice when you want to buy food or clean water, and you can buy 2-cycle, 2-passenger Chinese cars there too, because our emissions are changed to “anything goes”. Green rivers and ponds, 3 eyed fish.18. The Chinese government decides to implant natural born US citizens with microchips. Men are forced to work in Uranium mines and oil fields while women and children are forced to work in factories to make Calvin Klein underwear for the Chinese naturals.19. There's a civil war between the North and South URA. Tens of millions of casualties before Jesus comes to take us home.Keep in mind that it doesn’t matter if Obozo or Mittens is elected – either way, we’re doomed.

nz8ntf
nz8ntf

I see no analysis here, dull or misguided. I see only an opinion - not not a thoughtful one.

AaronCohn
AaronCohn like.author.displayName 1 Like

Romney is clearly better for the economy in the long term.  His ideas are better for business growth.  But the markets and the economy aren't the same.  While the article loves to mention markets have "soared" under Obama one must remember that currencies globally have tanked.  Gold is the only currency not subject to the effects of central bank manipulation and it has doubled in dollar terms since Obama took office.  In ounces of gold, the stock market hasn't moved from the bear market lows.

And that's why the conventional wisdom Romney would be better for the markets may be incorrect.  The markets have gotten used to their daily drop of money printing blood from the fed.  And Romney is on record in favor of replacing bernanke.  My personal opinion is that a Romney election would result in a deflation in asset prices from stocks to commodities to gold on that basis.  In fact, you're starting to see, in my opinion, a Romney presidential win priced into the markets, with a bullish breakout in the dollar and commodities and stocks under pressure.

JorgeJohnson
JorgeJohnson

Brilliant analysis, or maybe just a reinforcement of what I believe is likely to occur.

I believe the economy will improve no matter who is elected. I also believe that under Romney, you are likely to see faster growth because the House Republicans will lay off the breaks they have applied to the Obama economy.

The problem then might be inflation, which the Fed will have to adrdress with monetary measures.

A more beneficial outcome - though less likely - is a cooperative House under an Obama presidency, which will result in less rapid but more steady growth.

Of course, if Obama wins, the Cantors and Pauls of the House will continue to do everything they can to thwart a successful Obama presidency - the country be damned.

TdanR
TdanR

Romney installation progress:

▓▓▓▓▓▓▓▒▒ F AIL! |

Installation has failed. Please upgrade version.App does not meet OS 2012 requirements.

Obama 2012Congress 2014Clinton 2016

Belarusa
Belarusa

@TdanR Well well, arent you just a little candy coated liberal psycho? Clinton 2016? Do you even attempt to hide being a communist or do you proudly fly the hammer and sickle in your yard?

HalfFast
HalfFast

Dems better for Wall St and Main St.

Democrats better for Wall Street than Republicans, research shows

www.guardian.co.uk/business/economics-blog/2012/aug/29/democrats-better-wall-street-republicans

www.nytimes.com/interactive/2008/10/14/opinion/20081014_OPCHART.html

s.england
s.england

Since WW II, or when Truman took office, the average annual increase in the S&P 500 under a Democratic president has been some 14% while under a Republican president it has only been about 7%.

anarcurt
anarcurt

Romney's tax policies would be bad for long term stock prices. By keeping taxes low on the rich it makes the value of instant gratification (cashing in capital gains and overpaying executives) more valuable in comparison to reinvesting the money in business activity (such as machinery or added employment). If someone has to pay significantly higher tax on(>50%), say, all net profits over a million then they get less reward (post tax cash) for excess money they pull out. This would naturally make reinvstment much more attractive which is pro-growth.

TL:DR Low tax rates on the rich creates a disincentive to reinvest in your business which lowers company value and GDP growth.

yrag46
yrag46 like.author.displayName 1 Like

.................................................................BAIN CAPITAL STRIKES AGAIN................On the day before an election that's supposed to hinge on jobs, taxes and the middle class, Bain Capital, the company Mitt Romney founded, will close the doors of a factory in Freeport, Illinois, and ship 170 good, high-tech jobs to China.

The employees of Sensata Technologies were forced to train their Chinese replacements, and the American flag that long flew over the factory was reportedly removed while the Chinese engineers were visiting the site.

Sensata workers have requested an audience with Romney, but he has repeatedly refused to meet with them.

This speaks to the character, or in this case the lack thereof, of this chameleon candidate.....

DeeDee
DeeDee like.author.displayName like.author.displayName like.author.displayName 3 Like

The markets are white men gambling. For sustained prosperity for all, history has proven that the Democratic people are the job creators, NOT the 1%, the Democrats practice a value system of inclusion, not exclusion, prosperity for all, not the few who have manipulated, stolen and bought the "democratic" system for their own personal gain, and morality is not based religious rhetoric.

Belarusa
Belarusa

@DeeDee Why have a job at all when I can just sit back and wait for you liberals to start redistributing wealth? I mean if everybody gets to win whats the point of work?

johnnyrenonv
johnnyrenonv like.author.displayName like.author.displayName 2 Like

The markets will get a good bump, as will the economy as Republicans who refrain from investing out of spite for Obama will indeed invest if Romney is elected.  We will have four years of corporate sodomy and sticking it to the man, then the public will wise up again and go back Democratic.  We learn from our mistakes, but we forget every four years.

romano70
romano70

@johnnyrenonv You are dreaming if you think the the rich are not investing. Even worse, delusional if you think they would stop doing it only to make a political statement. Money doesn't sleep and it is like a shark, it needs to move or it dies. Time and again, democrats have proven to be the best handlers of the economy and I think that republicans live in a thick bubble with over-simplified and logic-defying economic theories that explain how all the messes they cause are not messes but actually good for the country. Lots of suspension of disbelief in the right (terms that I don't expect them to understand, these are people who compare the national budget to their own credit cards' lines of credit, mind you)

Del
Del like.author.displayName like.author.displayName like.author.displayName like.author.displayName 4 Like

For those who want to move should Obama get a 2nd term, please don't let the door hit your rear.  Obama's work for the country is slowly showing, if you can't see that it's because now matter what he does you still won't vote for him.  An open market under Romney is all great for the fat necks at top, Bush tried this free pass for the market and LOOK where we are.  It takes more than 4 years to fix this economy up because Bush used two terms to piss on it.

Belarusa
Belarusa

@Del There's nowhere left to go that's not being corrupted by liberals and communism. I figure I'll just wait it out here, watch you liberals starve to death when big government cuts you loose to save itself, then rebuild the nation just like America was before your twisted kind came here from France.

Teacher
Teacher

The world has been corrupted by economic liberals dumb-ass.

romano70
romano70 like.author.displayName 1 Like

@Del If they don't see it, it's because they only watch Faux News.

CarolJohnson
CarolJohnson like.author.displayName 1 Like

Why do not those who believe Romney would be better for the market take a look at what the market has done since 1926 before they start making predictions. Since 1926 up to 2000 equities returned 7 percent more during democratic administrations than republicans administrations. The bond market returned 2 percent more during  republican administrations than democratic administrations.  Since the market dropped 47 percent during the Bush administration and risen some 68 percent during the Obama administration, I would the money men do not understand what they are talking about and are only looking at their political leanings instead of the facts. THEY SEEM TO ME TO BLINDED BY THEIR POLITICAL LEANING INSTEAD OF THE MONEY THEY COULD MAKE,  BUT THEY HAVE SO MUCH THEY DO NOT NEED ANY EXTRA AND EXPECT TO MAKE MORE FROM TAX CUTS THE REPUBLICANS PROMISE THAN FROM THE MARKET!!! STUPIDITY KNOWS NO BOUNDS AND  EDUCATION OR WEALTH DOES NOT SEEM TO AFFECT THE FACTS!!!

romano70
romano70

@CarolJohnson Conservatives would rather lose money in their 401K's than to see gay people get married. Talk about rpiorities!

Belarusa
Belarusa

@romano70 @CarolJohnson It's called moral absolutes, we don't expect liberals to understand what that means, you just keep defining right and wrong based on what makes you feel good.

Teacher
Teacher

Moral absolutist meet the Taliban.

summit1986
summit1986

Regardless who wins the election, I feel we all end up on the losing end.  Personally, I'm voting for Gary Johnson.  I have zero confidence in Obama or Romney.

branchltd
branchltd

I can't speak for anyone else but I'm moving assets overseas if Obama gets another term.

Teacher
Teacher

Where are you gonna move your assets? The world is in an economic slump, not just the United States. Thanks to fiat currencies and the neo-liberal (i.e. neo-conservative in the U.S.) globalization of fractional reserve banking we have a world economy frothing with bubbles and speculation. Banks create money (out of thin air) through creating debt.

Belarusa
Belarusa

@branchltd Overseas? Where? Is there a country NOT like what Obama and the Kool Aid Kult are trying to make here in America?

romano70
romano70 like.author.displayName 1 Like

@branchltd I wish I could say this with sorrow or compassion, but there is no way, so here it is: the country will benefit greatly if people like you LEAVE NOW! Every time there is a republican in the presidency, everything gets screwed up and then Democrats have to spend their terms in office cleaning up their messes, so they can screw it up again. I will gladly pay for at least one airfare ticket if you decide to go. Whereto, by the way? ALL of the civilized world is "socialist"...and those countries who have very limited government, don't even have running water...pick one! I heard African countries have practically no government and they hate gays down there......

Belarusa
Belarusa

@romano70 @branchltd Romano, why can't YOU leave? Why can't you be the ones to migrate to a communist European hellhole? That's what you're trying to do here, wouldn't it be easier just to move to a country that's already ruined by liberals?

Teacher
Teacher

Communist Europe? Really?

AaronCohn
AaronCohn like.author.displayName 1 Like

@romano70 @branchltd The only thing more tiresome than the long list of obama's abject failures is the even longer list of rationalizations of those failures by his chorus of acolytes.

Listen up, zeke.  George Bush isn't on the ballot.  Either is JFK or Abraham Lincoln.  Reagan never blamed the economic mess he inherited on Carter.  He never had to.

RichSnyder
RichSnyder

@branchltd Go for it - it works for Mitt, and even if he wins, he'll still keep it overseas to avoid paying tax (not bad in itself, but not good if the guy wants to shift the revenue shortfall/burden by limiting Middle Class deductions).

yrag46
yrag46

@branchltd  

Maybe you can commingle your $100 with The Twit's millions hidden in the Caymons...... 

RichSnyder
RichSnyder like.author.displayName 1 Like

Analysis is simple.  The markets have shot up during Obama's term - partly because they were so low to start with, and the fed injected money (devalued dollars) into the economy (QE1 through QE3).   Profits went up because labor costs went down, but this is going to change (regardless of who wins).   If Mitt wins, we'll have to see effects of tax cuts, doubled defense spending, and cuts in fed spending (currently these are all unknown).   I think the markets are poised to go down (unless demand starts driving profits) and will go down due to Romneynomics (no way he'll pay for his stuff without massive cuts to states, which will filter down to state, county, and local taxes/fees).  Also Romney's "job creation plan" has no backing or committment from those who actually sign paychecks (Mitt says 4M jobs will be created immediately when his "energy independence" goal is implemented), but the energy industry hasn't said anything.  We'll see - in either case, hold on - the biggest factor for stock market direction is the end of profit growth from continued cuts (this won't change until demand increases, and if it does, oil/gasoline will go up to keep discretionary spending in check).

romano70
romano70

@RichSnyder You make it sound like Romney's plan has a snowball's chance in hell. It doesn't. Like Clinton said: their Math doesn't add up!

boomboombip
boomboombip

@DavePlanka How do you explain the cyclical bull market while President Obama has been in Office.  Mind you, that cyclical bull market is inside of a bear market.  January 2009 - 8,000 for DOW, November 2012 - 13,000 for DOW.

SteveJameson
SteveJameson

Vote for revenge? Revenge against what? Against the white man? Against the wealthy? Against anyone who has worked hard to become successful and “build their own business?” Against those with values, morals, principles..those who believe in the Constitution of the United States?Obama is the most extreme Muslim of them all. His ideologies are dividing and destroying this great country. Wake up America! It’s time to say goodbye to this experiment that went horribly awry.

Teacher
Teacher

"Obama, the most extreme Muslim of them all!" you need to put that on a T-shirt. No, I'll put it on a T-shirt. Can I quote you?

romano70
romano70

@SteveJameson HA! Where to begin? Revenge for trying to limit American's rights and freedoms (whether they are gay, immigrants, minority voters, etc). Revenge for trying to dismantle Medicare (don't spin it, a voucher system is its death). Revenge for attacking women's rights to chose (NO, it is not a child, it is less than an embryo!!). How can democrats be against success, when the president himself is the model of Rags to Riches??? Romney didn't have to sweat it a day in HIS LIFE!, he doesn't represent success, he represents good connections and inheritance money!

yrag46
yrag46

@SteveJameson 

Against the idiot who said.....LET DETROIT GO BANKRUPT.......  are you really that dense  ?????

CarolJohnson
CarolJohnson

@SteveJameson  Vote for revenge for the lie that Romney said that GM and Chrysler were moving all the jobs to China, because Chrysler said they were going to build a factory in China to sell cars there. But he failed to mention that Chrysler also is building a new factory in Ohio to make jeeps.====know all the facts before you like Romney run off at the mouth!!

boomboombip
boomboombip

@SteveJameson All economic indicators are up.  It's unfortunate that you, as a white man (I'm assuming), has bought into the fear.  Fear has been successful at keeping the wealthy in power.  And at keeping middle class whites with your view/fear with NO VOICE.  You think you have problems now - VOTE for Romney and you will suffer the most.  Why?, because you are the most blind, used electorate in the country.  Probably in the history of US Presidential elections.

RichSnyder
RichSnyder

@SteveJameson Revenge for "trickle down" policy that hasn't created any jobs.... if it did, Mitt would have cited industries that benefited.