Watching the Markets The Week of the Presidential Election

Given how volatile the stock markets have been in recent months, it’ll be interesting to see what happens this week, the week of a presidential election.

And this just isn’t any presidential election — it is a historic one. On Tuesday, we’ll break barriers for either African-Americans or women. Beyond that, we’ll select either the Democratic or the Republican party to deal with the biggest financial crisis the country as seen since the Great Depression. And we’ll also chart a course for two wars the U.S. is fighting in Iraq and Afghanistan.

So while the markets are already reeling, how will they handle the presidential news Wednesday morning, whatever it might be?

Whoever wins, investors will of course make snap judgments about what kind of general economic policies the markets are in for. Democrats traditionally offer more regulation than Republicans. And Republicans are traditionally seen as friendlier to big business.

Our current economic climate might mitigate those stereotypes. More regulation is likely coming in the wake of this crisis no matter who wins. And the severity of the crisis has tossed the usual party philosophies about bailouts, nationalization and government investment in private firms out the window.

But, according to this Reuters story today, it’s not so much who wins that will have an affect on the market, but whether someone wins decisively:

Paul Nolte, director of investments at Hinsdale Associates in Hinsdale, Illinois, said as long as the election was decisive, stock markets will likely react positively, regardless who wins.

Thomson Reuters data shows that on average the 60 days preceding a new presidential term yield positive returns, suggesting that the lack of uncertainty after elections usually gives the market a boost.

“Once we know what the balance of power will look like, investors can factor that into the equation. The market may not like who wins, but it will like knowing,” said Christopher Zook, chairman and chief investment officer of CAZ Investments in Houston.

It’s that classic rule of the stock market: investors dislike uncertainty. Barring any kind of Bush vs. Gore-like election debacle this week (polls and pundits so far suggest that isn’t likely), history shows that the next 60 days might see relatively better times for the stock market, at least in the short term.

Of course, every election is different, and rules are made to be broken. In the end, we are in extraordinary economic times. By the time this Friday rolls around, we’re likely to see the biggest drop in monthly employment numbers since March 2003. And who knows what the next few months hold until President Obama or President McCain take office. As usual, we’ll take it one day at time.

More

Be sure to watch Jeff Hankins and I Tuesday night, as ArkansasBusiness.com joins with Today’s THV for live coverage of the presidential race.

(A version of this post also appears on the Scanner.)

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