11/5/12 3:20 PM – Tomorrow’s Election & the Markets

From an investor’s point of view, does it matter who wins the election tomorrow? It seems everyone has a strong opinion on how critical it is for their candidate to win.

In fact, a recent poll by the organization of CFAs (Certified Financial Analysts) found that 80% of people felt that this election will have an important effect on the economy.

Here is a pair of chart put together by Credit Suisse quantitative analysts:

Looks far better for Republicans, yes?

Well, here’s another interesting angle based on a change from one party in the White House to another:

Or, here is one that shows the return the year after each presidential election since 1928. It is probably unfair to Democrats since in 1932 and 2008 the Democrats came in during an economic meltdown.

You can see that different views give different messages. I think the market would do better under Romney than Obama because he is far friendlier to business with less of a reliance on taxes and increased regulation and with a supposedly greater committment to reducing the federal debt, or at least not letting it grow as much. Whether, with a divided Congress he can actually pull that off and whether he works out as advertised (does anyone in DC?) we’ll need to wait and see.

I believe the market has priced in an Obama victory and the Senate and House staying pretty much the same. So, an Obama victory would probably not move the market too much, though it is really tough to call an individual day or week in the markets. On the other hand, I think the market would quickly react positively to a Romney win as long as it is not contested.

Over the next year, the direction of the market will probably have less to due with who wins tomorrow than most people believe. The economy and corporate profitability have far more to do with it and no one person has as much control over that as they would like to advertise.