Breakout

Is Wall Street Betting on Four More Years?

Jeff Macke
Breakout

The polls just opened but, as far as Wall Street is concerned, President Obama's second term started months ago. For all the bombast, howling and complaints, the fact is Republican candidate Mitt Romney never had a substantial lead in the polls. It's telling that, even when Romney inched ahead in the major media surveys, the governor was never for a moment favored by the odds makers, and stocks never traded in a manner suggesting a change at the top was imminent.

Sam Stovall, chief equities strategist at S&P Capital IQ, offers a few signs that Wall Street has made up its mind on the winner. First is market performance. When the S&P 500 is higher for the three months ending October 31, the incumbent or his party has been re-elected 80% of the time.

For those suggesting stocks are strong in anticipation of a Romney win, Stovall points to the correlation between intrade odds and other sites and the market.

Most compelling is Stovall's point on high-yield stocks. One of the themes of the election has been increasing taxes on the rich, in part by hiking dividend taxes. Such a tax, if implemented, would reduce the net value of dividends and the underlying stocks. Over the last month, members of the S&P 1500 with dividend yields greater than 3% have an average loss of 1.3% compared to an average gain of just under 1% for low or no-yield equities.

Stovall says, "The implication is that either investors believe that the president will be re-elected and therefore the Bush tax cuts will be going away for those making more than $250,000, or the race is so close that they want to hedge their bets." The latter conclusion is difficult to support, given the weight of the other evidence.

The polls make the race look closer than it is because polls reflect passion and fickle moods. They're about what people want when asked by a stranger over the phone. Wall Street is about numbers and odds. Incumbents always have the edge. No matter how much the Republicans wanted it, Romney couldn't build enough outrage in the masses to convince traders that the public would vote for change. It's not a question of political affiliation. It's just odds.

For markets an Obama win means more of the same, for good or ill. Washington is broken, gridlocked and hopelessly unwilling to compromise, often at the expense of the American people. Whether you lay blame on the president, the House, the Senate or all of the above, the polarization has gotten worse over the last four years. Anyone who says otherwise hasn't been paying attention.

What can you do about it? Vote. Make the world here what Walt Whitman called your "barbaric yawp" by walking into a booth, closing a curtain and pulling a lever for your candidates. Vote for the people who best represent what you feel about the country, your state and your county needs. Your vote is never wasted, even if you don't live in Ohio or other battleground states.

Inform yourself on the issues and make your choice. Just know that, as far as Wall Street is concerned, the big one has already been settled in favor of President Obama. For better or worse, get ready for four more years.

Please answer our poll question below: Which candidate do you believe is better for your money?

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