NEW YORK: Never mind the financial crisis: with just days before the American presidential election, investors on Wall Street are betting big on a win for Democrat Barack Obama. But they wouldn’t be unfavorable to an upset by Republican John McCain. “Given Obama’s advance in the poll, it’s pretty clear who’s going to be president,” said Owen Fitzpatrick of Deutsche Bank.

Most people expect that a Democratic victory is incorporated into the market’s dynamics already, according to Mace Blicksilver, director of Marblehead Asset Management.

On Intrade.com, a trading exchange website where members can speculate on each candidate’s chances, Obama is the clear favorite, holding a winning margin of 84.5 percent.

Intrade finds Republican John McCain with a 16.6 percent margin, down from over 50 percent in September.

For their part, economists at IHS Global Insight calculate the Democratic candidate has a 53.1 percent chance of victory compared to McCain’s 46.9 percent, an outcome they deem “not surprising” due to the ongoing economic crisis. Sam Stovall, strategist for Standard & Poor, a leading risk assessment house, relies heavily on historical statistics and precedent.

If the markets decline between August and late October (which is the case in 2008), power almost inevitably passes from one party to the other, he said.

Of the six times this situation has arisen since 1928, only one time has the rule been bucked: the 1956 reelection of Republican Dwight Eisenhower.

But Blicksilver doesn’t expect the markets to respond well to a Democratic victory.

“If Obama wins with a significant margin, I could promise you that Wednesday will be a very hard down day,” he said.

With an Obama victory, investors “know that capital gains taxes are going up, and they’ll say ‘I don’t want pay a third more in tax,'” he added. According to analysis from the Brookings Institute, Obama’s economic plan includes increasing the maximum rate of the capital gains tax from the current 15 percent to 20 percent.

“If McCain wins I promise you the market will go up 10 percent on the opening and stay up all day,” predicts Blicksilver.

At the onset of the financial turmoil in September, McCain’s campaign denounced the “recklessness of Wall Street,” promised reform and proposed tighter regulation of the financial sector.

“In general Wall Street tends to favor the Republicans over Democrats, but people buy stocks for the long term and pass them to their kids,” said Stovall.

“They’re not going to sell off because a new party comes to power,” he said.
Historically, Stovall added, Wall Street experiences booms under Democratic presidents, with an average annual market rise of 10.7 percent, compared to 6.4 percent under Republican presidents.

“The market hates uncertainty,” noted Fitzpatrick. “Historically we have rallies post-election.”

Al Goldman from Wachovia Securities agrees, noting this trend will likely occur after the weekend.

“Look for some market hesitation Monday and Tuesday before the elections, but a rally after, no matter who wins,” he said.

“The next market problem will be (after) two to four weeks when the president-elect starts to say what he really has in mind for 2009.”

For Donald Ratajczak, an analyst at Morgan Keegan, there are still unanswered questions to be addressed before the election’s full impact can be seen on the markets.

He asks: “How will McCain restore confidence? Do we need a warrior or thinker? Why is Obama still talking about spreading the wealth even as wealth is plunging?

“Before Obama changes how the pie is cut, he needs to make sure the pie is on the table,” he said.

source: Economictimes

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