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The Market Is Saying…

Posted By Barry Ritholtz On November 2, 2004 @ 12:05 pm In Finance,Politics | Comments Disabled

I’m always wary of most interpretations of what “The market is saying.” I find that they provide greater insight as to the speaker’s politics than they do at determining what the market is “predicting.”

Here’s a quiz:

Have the stem cell stocks (STEM, GERN) been rallying because of a Kerry victory, or because of California’s $3 billion stem cell research bond issue?

How about the alternative energy stocks (BLDP, FCEL, APCC)?Have they been predicting an incumbent loss, or is this merely speculation?

What about oil itself — it plummeted from $55 to under $50 — was that because traders expect a President Kerry to tap the SPR — or was $55 a double top and an overextended commodity was due for pullback?

Similarly, is the recent rally due an endorsement for a particular candidate — or is it more positioning in favor of what’s looking like a clear-cut victory?

Additional Questions: Why are two sectors that benefit from a Bush win — one many analysts say might be the most directly affected by the election outcome — going in opposite directions? Big coal producers are all down early today, while big pharma are up.

A savvy political geek explained it thusly:

A “President Kerry” will likely be able to put together a clean energy/oil independence bill that both chambers of Congress will be afraid not to sign — tax credits for solar and alternative energy, clean coal, even nuclear power — along with CAFE standards being raised for cars, and the elimination of tax credits for Hummers and the like;

The Kerry health care proposal, however, is more likely to come out of Congress looking significantly different, especially the House version…

Pencils down. How did you score?

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