What the market really needs is a presidential election that voters decide quickly and decisively. If this election is mired in controversy and the courts for an extended period, brace yourself for a steep drop.
When the 2000 election stretched from Nov. 7 until the Supreme Court decision on Dec. 12 the Dow dropped 1.7%. It had been down much more.
The stock market cannot abide uncertainty. It can process and accommodate bad news, but what does it do with the unknown?
When you add in the other uncertainties of the war in Iraq, the threat of terrorism and a sluggish economy that is shaking consumer confidence, the market is poised for a big drop if this election isn’t resolved quickly and decisively.
The Good News
The good news is once the election is resolved; it is likely the market will rally. If there is a clear decisive winner, the rally could be significant.If it takes some time to declare a winner, the rally may be more modest. Removing that uncertainty will release money that has been waiting for an answer.
Which candidate would the market favor?
Conventional wisdom suggests the market would favor a business-friendly Republican in the White House. However, the most robust bull market (the tech boom of the late 1990s) in modern history flourished while a Democrat was president.
Oddly enough, that bull turned bear just before a Republican took over and got worse, which suggests it may not really matter all that much which party is in office.
It probably comes back to the uncertainty factor. Bush is a known quantity and Kerry is not. However it is resolved, the market will be glad (and so will I) when it is over.
