Any bid for the Presidency of the United States, from the tight race to the outcome, will surely affect both the U.S. economy and the capital markets at large. The 2012 election is no exception.
Follow our blog series for regular updates on the election and how each candidate’s strategy could impact the markets.
Today’s post focuses on Which Party Is Better for the Markets?
’Tis the season to dust off the charts answering the age-old question of whether markets prefer a) the Republicans or b) the Democrats to be in control of the executive and legislative branches of the federal government. For those of you that answered c) stalemate, you’re right. Going back to 1928, the markets, on average, have performed best with the Democrats in control of the executive branch and the GOP running the legislative branch.
To be honest, I put about as much credence in the market forecasting ability of the balance of power in Washington as I do in the notion that stocks go up when a team from the NFC wins the Super Bowl, this year notwithstanding. You might also note that markets seemingly prefer the Dems in charge of the executive branch regardless of which party controls the houses of Congress. To be fair to the GOP, having Herbert Hoover (1929) and George W. Bush (2008) occupying the Oval Office during the two biggest market meltdowns of the past century certainly skews the numbers in the left’s favor. More often than not, sitting presidents often benefit or suffer from policies put in place by their predecessors or from structural macro themes that are out of their control.
If you’re not like me and you assign credibility to the chart above, you’ll be happy to know that the current odds on the 2012 election have the president being re-elected with the Republicans keeping the House of Representatives and taking control of the Senate. Clearly that’s as good as it gets for the markets (sarcasm off). Of course a lot can change in the next 10 weeks. Remember, in August 2008, John McCain had opened up a 5-point lead over Barack Obama in national polls. The challenge for President Obama is still daunting. As we have said before, if Obama stays in the White House, he would be the first president re-elected with a sub-50% approval rating, an unemployment rate above 7.2% and a University of Michigan Consumer Sentiment Index below 90.
Congress also remains too close to call. The Republicans will likely maintain control of the House, although with fewer seats and a more conservative profile. The Senate is still up for grabs. The Democrats currently have 47 seats that are either considered to be safe or leaning left. The Republicans have 44. Control of the upper house will come down to 9 “toss-up” states.
The Republicans appear to be in the driver’s seat in most of the toss-up contests. The uphill climb for the Dems to control the Senate would have to go through Indiana, Missouri (Senator Claire McCaskill is leading Congressman Todd Akin in the latest polls), and Virginia. A 50/50 even split of the upper House is also not out of the realm of possibility.
For those of you hoping for the “magical” combination of a Democrat in the White House and Republicans controlling Congress, the Democrats running for Senate can still destroy this dream. Not to worry. If the Dems eke out a victory in the Senate and Obama holds on for another term, the balance of power will be the same as it has been since January 2011. The S&P 500 Index is up over 16% since the new Congress took over.1
1. Source: Bloomberg, 8/22/2012
Read more from the series Election Insights 2012 at http://blog.oppenheimerfunds.com/tag/election2012/