Market Wants a Decision on November 2

Tomorrow is election day in the US, and there has been a great deal of punditry over which candidate’s policies would be most beneficial to the stock market. Even if the president had as much influence over the markets as some believe, it won’t matter economically who the president is. What Wall Street wants is to get the uncertainty out of the way so that there can be a rally in stocks to make a run at 11,000 on the Dow Industrials before New Year.

No matter who wins the election, there are certain realities that are going to constrain policy. First, the federal government is running a deficit that is unsustainable. Two, the American economy is addicted to oil that is now selling for 60% more than it was a year ago. Three, America’s trade deficit cannot be fixed until various Asian economies let their currencies rise against the dollar. Four, globalization is not going to stop. Five, modern developed economies remain vulnerable to terror attacks (both foreign and home-grown).

Both major candidates have an advantage. Mr. Bush is a known quantity in the financial markets. His election would mean more tax cuts, more power for corporate interests, and more lax enforcement of existing rules. Mr. Kerry would, if elected, have to work with a Republican-controlled Congress. No radical agenda could get through either on the right or the left. And in a fit of reason, a tax and spending package might reverse the growing national debt as under Messrs. Clinton and Gingrich.

In the end, though, the presidency doesn’t really have dictatorial control over the economy. Even in the Soviet Union, the commissars never really controlled the economy, no matter how much they commanded it. The president can set the tone, influence psychology. Markets like a bit of cheerleading. President Reagan’s “morning in America” worked better for investors and speculators than Mr. Carter’s “malaise.”

Above all, markets hate uncertainty. Everything about Wall Street, from analyst research to pre-announcement of poor results, stems from a need for clarity of facts. In the short run, it will be far better for America if someone wins the White House 60% to 40% no matter who it is, than if the most business friendly candidate gets 50.01% after three recounts. Once the event is decided, the market will rise from the current exaggerated lows of pre-election uncertainty.


© Copyright 2004 by The Kensington Review, J. Myhre, Editor. No part of this publication may be reproduced without written consent.


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