Sorry Obama, Wall Street doesn’t care
This post is a guest contribution by Paul Kedrosky*, market commentator and venture capitalist who also blogs about financial matters of the day on the Infectious Greed site.
Honestly? Wall Street doesn’t care. Yes, I know that’s not the answer anyone wants. People want to believe that Wall Street is obsessing over the presidential race the way most of the country has been. It seems only right somehow, sort of mirrored pathologies. There is a pathology going on, however, but it’s much, much stranger.
There is no denying that there is a relationship between presidential elections and the markets. You would have to be delusional to believe that choosing, say, Mao or Mussolini wouldn’t cause the markets to implode the morning after. But that’s an extreme case. To be somewhat more practically-minded, there is data showing that Democratic presidents are best for the markets. But then again, data also shows Republican presidents turn in the best Dow Jones numbers between the election and the end of the year. And then there are those positive numbers on how Dow Jones returns look for Democratic presidents who control Congress, but only have a small majority in the house. Let’s not forget, of course, the cheerfully nuts claim that the main reason the stock market sold off to the point of nothingness in September was that Barack Obama went from being tied with John McCain to having a clear lead in the presidential race.
Should you care about all this psycho-babble data? No. It is small-sample silliness intended to give nonsense the patina of truth, which it isn’t. Here is the reality: Markets generally don’t know what to make of presidents. Such people rarely do what they say they are going to do, which makes discounting the future difficult; and such things as they do that turn out to matter to markets often have their economic significance missed for years. Who would have thought Reagan would be as progressive as he was, that Clinton would be such an unrepentant free-trader, and that Bush II would be so tone-deaf on economic matters? None of them seemed that way going in, and yet that’s what happened. On the other hand, while many people thought that Sarbanes-Oxley was overreach, who would have thought it would lead, in large part, to the near complete disappearance of initial public offerings in the US. Even its most scathing critics didn’t expect that outcome.
Please click here for the rest of Paul’s article.
* Paul Kedrosky’s bio is here.
Source: The Daily Beast, November 6, 2008.
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