By Rodrigo Campos
NEW YORK Nov 4 Regardless of the results of
Tuesday's U.S. presidential election, the next four years will
be a tough act to follow from Wall Street's standpoint.
The benchmark Standard & Poor's 500 Index has
rallied 66 percent since President Barack Obama took office -
one of the most impressive runs ever for stocks under a single
president. Admittedly, the timing of his inauguration - just
before the market hit a nadir in March 2009 - is part of the
The national polls show a tight race between Obama and his
challenger, Republican candidate Mitt Romney, but leaning toward
a win by the president.
"The market might like the fact of an Obama win since it
would mean less uncertainty," said Ryan Detrick, senior
technical strategist at Schaeffer's Investment Research, in
Strategists have said the market's pattern of late also
suggests status quo - an Obama win. A "Romney rally" is a 1-in-3
possibility, taken betting site InTrade's odds of an Obama win
at about 67 percent right now. Other prognosticators put his
chances of re-election even higher.
The most recent Reuters/Ipsos tracking poll shows both
candidates garnering 46 percent of the vote - but polling
averages show Obama with small but critical leads in swing
states Ohio, Virginia and Iowa.
There's a conventional line that says a victory by longtime
businessman Romney would be better for the equity market, given
his predilection for fewer regulations and lower corporate tax
rates. Still, any move in the market, no matter the outcome, is
likely to be limited.
"I think the market has priced in an Obama victory, but no
matter what, any knee-jerk reaction after the election will
unwind over the next few days," said Joseph Tanious, a global
market strategist at J.P. Morgan Funds, in New York.
"The fiscal cliff is also on everyone's mind, but that will
really take hold after the election, since the winner could
indicate what happens."
Strategists at LPL Financial have been tracking two baskets
of stocks to judge whether the market believes Obama or his
challenger Romney will emerge with a win. The "Obama" stocks
include health care facilities companies, food and staples,
utilities, construction companies and homebuilders. The "Romney"
stocks include financials, coal stocks, oil and gas drillers,
telecom, and specialty retail names.
The Obama index peaked in early October, before the first
debate, largely seen as being won by Romney. Yet in terms of
"relative strength," the index still modestly favors the
CHANGE AT THE FED?
The move in the market during Obama's administration was in
part due to timing as the U.S. economy started to recover from
the deepest recession since the Great Depression.
The U.S. Federal Reserve has used three rounds of asset
purchases, one of which is under way, to keep interest rates low
and stimulate the economy as the recovery from the 2007-2009
recession has been painfully slow.
Romney has criticized the Fed's policy and is seen replacing
Chairman Ben Bernanke with someone more likely to tighten
"With Romney, we'd expect a little more weakness off the
gate. He might want to put a stop to the Fed's stimulus. That's
where that uncertainty comes in," Detrick said.
The Fed's current policy stance is seen as helping Obama.
Consumer confidence recently rose to a more than four-year high,
and housing prices are rising again. However, unemployment
remains at 7.9 percent nationwide, and the lack of good jobs is
Regardless of the winner in Tuesday's election, the market
will have less uncertainty. It will shift its focus to the
roughly $600 billion in mandated spending cuts and tax increases
that could kick in next year and send the U.S. economy reeling -
if a deal to prevent it is not reached.
The possibility of a new recession - if Congress fails to
agree on how to avoid the cliff - has many market participants
counting on resolution, with the election as a variable in terms
of when any legislation will pass - not if it will happen.
The end result in both an Obama or a Romney presidency would
be a deal. But the status quo would probably mean a more
protracted solution and market volatility, according to Brian
Jacobsen, chief portfolio strategist at Wells Fargo Funds
Management, in Menomonee Falls, Wisconsin.
"From an investing standpoint, what I care more about is the
likelihood of getting some sort of deal to avoid the tax
increases and spending cuts at the end of the year," he said.
(Wall St Week Ahead runs every Sunday. Questions or comments
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