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?
The election of your lifetime.
That’s what the vote on November 2nd vote has been called. It’s probably a fair description in many, many policy areas. The two major party nominees for President differ on a host of issues, ranging from international affairs to economic strategy to tax policy. Even on basic issues of science – stem cell research (biology), global warming (chemistry), missile-defense (physics) – there are huge distinctions between the Republican and Democratic candidates.
When it comes to the capital markets, conventional wisdom assumes that the outcome of this election will matter a great deal.
Why? There are simply far too many structural factors that will hamstring whoever assume the Office of Presidency on January 20, 2005. The post-bubble environment has problems that will likely be cured only by the passage of time. Large budget deficits will continue, as will the ongoing weakness of the dollar. The economy is likely to grow, albeit at only a very modest pace, for the foreseeable future.
Further, U.S. presidents have far less influence over the macro-environment than most believe. The United States economy is a multi-trillion dollar behemoth, and its business cycle is not readily changed by minor – or even major – course corrections.
Consider the environment the president-elect steps into: With the 2003 stimulus fading, the economic expansion has already started to slow down. The trend of the past four quarters of GDP growth is revealing: 7.4% in the third quarter of 2003, 4.2% in the fourth quarter, 4.5% in the first quarter of 2004, and 3.3% in the second quarter. The end of the softspot was supposed to be 2004′s 3rd Quarter GDP — that came in below consensus, at a (disappointing) 3.7%.
This movement is even more pronounced if we back out government spending on military and wartime explanations.
Unless another trillion-dollar stimulus package is forthcoming – and given the huge deficit, that is highly doubtful – economic growth will be in the 2.5% to 3% range.
And that’s without factoring in the impact of $50-plus-a-barrel crude.