Just over three weeks until election day, and the polls look about as tight as Sofia Vergara’s “Modern Family” maternity wardrobe.
As it increasingly starts to look like the Romney/Ryan ticket might be able to pull out a win, is that an all-clear signal for stocks? Well, to quote Joe Biden: “Malarkey.”
Market history since 1980 shows that when there is a shift in the party occupying the White House — even if the new occupant is a more market-friendly inhabitant — Wall Street tends to play it cautious between Election Day and year’s end.
In the fall of 1980, for example, the Dow gained a mere 10 points between Ronald Reagan’s election victory over Jimmy Carter and the start of the new year, even though stocks would rise more than 130 percent during Reagan’s two terms.
Similarly, stocks went nowhere between Bill Clinton’s election victory over George H.W. Bush in November 1992 and the start of 1993, even though Clinton eventually oversaw a bull market even mightier than that of Reagan.
But investors need to be particularly cautious when a change of power on Pennsylvania Avenue occurs in a squeaker-close election.
Such was the case, of course, in the fall of 2000, the year of George W. Bush vs. Al Gore. How did stocks fare? Well, not so well. Between Election Day through the end of November, while the outcome hung in the balance, the Dow shed 5.5 percent.
As market veteran Art Cashin of UBS (a man, by the way, who has seen more than his share of malarkey at the NYSE over the years) wrote on Friday, it would be best if whoever wins the election Nov. 6 does so by a significant margin. The polls may be wrong, but such a scenario doesn’t currently seem possible.
Romney is on record as being no fan of Fed chief Ben Bernanke. If he sends the kindly professor packing back to Princeton, Bernanke’s policy of QE-infinity, also known as easy money forever, goes along with him.
That’s not to say a more hawkish central bank in a Romney administration won’t eventually reward savers and investors by resetting rates to more normal levels. A Fed chief such as Romney adviser John Taylor would likely be embraced by the markets after a period of adjustment.
Meanwhile, don’t be surprised if the Dow and Romney’s InTrade numbers keep heading in opposite directions.