We have previously dismissed suggestions that market performance rises and falls in response to either candidates polling numbers. My conclusion was that the same underlying factors were impacting both the election race and the market. This was due to the all too common analyst practice of confusing “Cause & Effect”
Now we see a diffferent take which may actually have some resonance: The variation of this theme is comparing the Incumbent’s polled approval ratings with the price consumers’ pay for Gasoline. (via Professor Pollkatz)
click for larger chart
Graphic courtesy Prof PollKatz
There seems to be a fairly high correlation between the two, with perhaps a short lag. In these issues, the question is always: “What is the correlation, and is there a causative factor?”
In the rpesent case, the expectation of an incumbent getting blamed for high energy prices passes the sniff test.
Incidentally, the good Prof has a rather elegant solution to the issue of bad or biased polling: He maintains a “Pool of polls,” with every poll result simultaneously represented. It very cleverly solves a host of problems.
Lastly, for a host of polling details, I put together a full list of Presidential Polling Data Resources.
Here’s a fascinating compare and contrast analysis, sector by sector, of the impact of each candidate in the election from last week’s WSJ (You may have overlooked it, buried as it was in the Personal section). The Jornal observed: “The economy is at center stage ahead of the Nov. 2 presidential election. Job creation has picked up this year, but employers remain cautious about adding substantially to their payrolls, and employment levels remain below where they were four years ago.”
Thats the gross overview. Let’s get down to the nitty-gritty details:
With Election Day less than a month away, Wall Street has already staked out its own winners and losers.
In recent weeks, research analysts at the major brokerage houses have been churning out reports identifying what a Bush or Kerry administration would mean for investment strategies — and which sectors of the economy would undergo the biggest changes if there were a change in leadership. A recent report by equity analysts at Credit Suisse First Boston, for example, notes that with the start of the presidential debates, “we thought this was a good time to revisit the candidates’ health-care platforms and their significance for managed-care stocks.”
Lehman Brothers and investment-strategy firm ISI Group have created “presidential indexes.” The idea is to track the performance of stocks that are likely to be most affected under each administration. ISI’s “Bush Index” holds pharmaceuticals and energy stocks, among others, reflecting the belief those sectors would fare well under a second term for the president. ISI’s “Kerry Index” has short positions in health maintenance organizations and utilities. The indexes act as a proxy for what Wall Street is thinking will happen Nov. 2.”
I continue to hold the position that while the President matters less to the macro economy and the overall market than most people believe, they do have a large impact, on individual sectors. Thus, any change at the top will be significant (at least somewhat) to specific industries. Since its doubtful the House of Representatives will change — that makes the implications of a change in presidential leadership somewhat less significant than it might be otherwise.
Here is a breakdown, sector by sector: