Traders spend hours handicapping the Presidential Election. Whether they consult Intrade.com or CNN (or just ask their buddies), to have an edge on who's going to win in November can be worth millions in the right hands.
According to Jeff Kleintop of LPL Financial the most accurate polling information may be buried in the market already. "Plenty of polls tell you what the man on the street thinks," explains Kleintop, but few use the market itself. LPL and Kleintop fill that void with what they call the Wall Street Election Poll Index.
LPL's index uses the prices of politically sensitive sub-sectors to gauge the political winds. By this measure, the Republicans have been gaining momentum for the last month, but all is not lost for the political left. "The last week or so has seen the Democrats pick up a little bit of steam," says Kleintop, as evidenced by strong moves in Dem-friendly construction and homebuilding stocks.
The system isn't as simple as a glance at the stocks. LPL attempts to "strip out and balance out the cyclicality" of industries to control for sectors that are more impacted by the business cycle than politics. By way of example, Kleintop points to energy. Broadly speaking, the group trades as a function of global demand, not politics. Certain "green" sub-groups, however, are very much impacted by which party is in control.
Another advantage of LPL's index is that it's less focused on the Presidency than other polls. Most traders can tell you President Obama is trading in the mid-50's on Intrade.com, and most Americans probably know the President has a slight lead over Romney in the polls. Far fewer people have any idea of what's going on state by state. In contrast, the Wall Street Election Poll Index "gets down to what happens to the entire panoply of Congress," according to Kleintop.
So who's going to win?
As Kleintop sees it, "Based on the poll right now, it would give a slight edge to Democrats retaining the Senate and the White House"—at least the way traders are betting. They're a notoriously fickle group, but speculators also have the most riding on the election in the short term. At the very least, the view of the Street deserves a place in the polling universe as the election nears.
